Based on the following income statement for the year ended November 30,2020 , senior management at Benton have decided to concentrate Prime's marketing resources on the Maximum model and to begin to phase out the Mammoth model because Maximum generates a much bigger operating income per unit. Details for cost of goods sold for Mammoth and Maximum are as follows: Details for cost of goods sold for Mammoth and Maximum are as follows: (a) Mammoth requires 1,5 hours per unit and Maximum requires 3.5 hours per unit. Ine direct manulachun iny aivn! cost is $13.00 per hour. (b) Machine costs include lease costs of the machile, repairs, and maintenance. Mammoth requires 8 machine-hours per unit and Maximum requires 4 mchine-hours per unit. The machine-hour rate is $19.30 per hour. (c) Manufacturing overhead costs are allocated to products based on machine-hours at the rate of $27.50 per hour. Data table More info Campo does not like what he sees. "If you show headquarters this analysis, they are going to ask us to phase out the Maximum line, which we have just introduced. This whole costing stuff has been a major problem for us. First Mammoth was not profitable and now Maximum isn't. "Looking at the ABC analysis, I see two problems. First, we do many more activities than the ones you have listed. If you had included all activities, maybe your conclusions would be different. Second, you used number of setups and number of inspections as allocation bases. The numbers would be different had you used setup-hours and inspection-hours instead. I know that measurement problems precluded you from using these other cost-allocation bases, but I believe you ought to make some adjustments to our current numbers to compensate for these issues. I know you can do better. We can't afford to phase out either product." Jacobi knows that his numbers are fairly accurate. As a quick check, he calculates the profitability of Maximum and Mammoth using more and different allocation bases. The set of activities and activity rates he had used results in numbers that closely approximate those based on more detailed analyses. He is confident that headquarters, knowing that Maximum was introduced only recently, will not ask Prime to phase it out. He is also aware that a sizable portion of Campo's bonus is based on division revenues. Phasing out either product would adversely affect his bonus. Still, he feels some pressure from Campo to do something. Requirement 1. Using nctiviry.based costing, calculate tho gross margin per uns of the Moximum and Mammoth models. Begin by calcutating the total cost of goods sold for each model, (FRound internediary calcutations to the neasest cent? Indirect costs Soldering Shipments Quality control Purchase orders Machine power Machine setups Total indirect costs Total cost of goods sold Now calculate the total gross margin and gross margin per unit for each model using activity-based costing. (Round the per unit amounts to the nearest cen ss margin - total Requirement 2. Explain briefly why iteses numbers differ from the gross margin per unit of the Maximum and Mamenoth models calcuidied using Prime's oxisting aimple costing tyeatem. Prime's single oosting system allocotes all manufacturing overheed other than machine costs on the basis of Requirement 2. Explain brielly why these numbers ditfer from the gross margin per unit of tho Maximum and Mammoth models calculated using Prime's exsting simplo costing system. Requirement 3. Comment on Campo's conceins about the accuracy and limitations of ABC. (Selvet all that appily.) A. Adding more octivities would make the bystem harder to understand and more contly to implement, but it would probacty imptowe the accuracy of cost intormation, which, in tuin, would heig Prene make better decidions. 8. Using inspection-hours and setup-hours as allocation beses would also probably lead to more accurale cost informasion, but it would increase measirement costs. C. Compo's comments about ABC implementaboe ate fiot valid. Requirement 3. Comment on Campo's conceens about the accuracy and limitations of ABC. (Select of that apply) A. Adding more activities would make the system harder to understand and more cospy to itplernent, but is would probably impeove the ascuracy of cost information, atich, in turn, would help Prime make beter decitions. B. Using inspection hours and setup-hours as alcoation bases would nitco probably lood to more accurate cost informabon, but it would increase meastrement costs C. Campo's cornments abous ABC implementation are not valid. D. Adding mose nctivites would have ne impect on the complexity of the system and should be inexpensive to implement it would not necessariy mprove the nccuracy of cost information and therefore may not improve decision making E. Uting inspection bours and sotup hours as atocation bases would probably not lead to more accurale cost informasicn and would also hare no effect on meavurament costs. F. Whsen designing and implementing ABC systems, managers and managemont accountarts need to frade of the costs of the system againat its benefts 0. Campo's comments about ABC implementaton are valid Requirement 4. How might Pime fnd the ABC information helpkil in managing is business? (50lect al that apply.) A. Activity-based management is an integrative philosopty of manegement for continuously improving the qualky of products and processes by focusing primaily of the diect labor costs. B. Activity bosed management (ABM) is a management system where each component in a production line is manulactured only when it is heeded in the next step of the process. C. Fot the long tom, activity-based costing can assist manegentent in making decisions regarting the ptoductivity of the employees. D. As a whole-compary philosophy. ABM focises cn strategic, as well as tactical and operatonal activites of the company. E. Actrity based managemeet (ABM) is the use of information from activitybased coleng to make irrorojenents in a firm. producte, and eleninatiog wasle. 6. ABM is an wegated approach that focises manogemerifs atsention an analyzing the drect costs incuried in the manutacturing process with the utimate aim of cost resuction. eth. 1. ABM is an integrated approach that focuses managerneni's attention on activites wat the utimsase aim of continuaus improveirere. Roquirement 5. What should Seth Jacobi do in response to Campo's comments? (Select all that apply.) In assessing the situation, first consider the "Standards of Ethical Conduct for Management Accountants" that could potentially be violoted in this situation. A. Credibility B. Integrity C. Competence D. Confidentiality E. None of the standards are potentially violated in this situation. What should Seth Jacobl do in response to Campo's comments? A. Incorrect reporting of ABC costs with the goal of retaining both the Mamimoth and Maximum product lines is not unethical as the information is based on estima than historical data. Once the information is communicated to Campo, Jacobl is ngt obligated to take any further action. B. Incorrect reporting of ABC costs with the goal of retaining both the Mammoth and Maximum product lines is unethical, Jacobi should indicate to Campo that the cost calculations are, indeed, appropsiate. If Campo stili insists on moditying the product cost numbers, Jacobi is not obligated to take any further action becou his superior, What should Seth Jacobi do in response to Campo's oomments? A. Incorrect reporting of ABC costs with the goal of retaining bath the Mammoth and Maximum product ines is not unethical as the information is based on nstimates rather than historical data. Once the information is communicated to Campo, Jacobi is not obligated lo take any further action. B. Incorrect reporting of ABC costs with the goal of tetaining both the Mammoth and Maximum procuct lines is unethical: Jacobi should indicate lo Campo that the procuct cost calculations are, indeed, appropriate. If Campo still insists on modifying the product cost numbers. Jacobil is not obligated to take any furthor action because Campo is his superice, C. Incotrect reporting of ABC costs with the goal of retaining both the Mammoth and Maximum procuct lines is ethicali Jacobi has the obligathen to follaw ithe wishes of his immedlate supervisor. Raising the matter with one of Campo's superices would be unethical. D. Incorrect reporting of ABC costs whth the goal of retaining both the Mammoth and Leximum proouct ines is unethicali Jacobi should indicale fo Campo that the procuct cost calculations are, indeed, appropiate. If Campo still insists on moditying the product cost numbers, Jocobl should raise the inatter with one of Cacripo's supeciors. If. after taking all these steps, there is continved pressure to modify product cost numbers, jacobi sticuld consider tasigning fram the company rather thian engage in unethical behavior. Requirement 1. Using actlvity-based costing, calculate the gross margin per unit of the Maximum and Mammoin models. Begin by calcuiesing the total cost of goods sold for each model. (Round intermediary calculations to the nearest cant)