1. GM Industries makes and sells two types of security systems: Standard and Supreme. The Standard system is the baseline system, and the Supreme system is the high-end system. The Standard system requires $30 in direct materials per unit and $20 in direct labor per unit. The Supreme system requires $70 in direct materials per unit and $5 in direct labor per unit.

Currently, GM Industries allocates overhead using direct labor costs. GM Industries estimates overhead for the upcoming month will be $29,800, and estimates it will produce 100 units of the Standard system and 20 units of the Supreme system. The Standard system is produced in batches of 50 units. Units of the Supreme system are produced individually (batches of 1 unit).

Question:

1. Under its current costing system, what is the cost per unit of the Standard and Supreme systems for the upcoming month?
2. Akira, the controller at GM Industries, suggests updating the costing system to an activity-based costing system. Akira identifies four pools, as follows:

Cost Pool	Cost Pool Amount	Activity Driver
Labor Support Services	$3,320	Direct Labor Cost
Receiving and Handling Materials	$15,020	Direct Materials Cost
Setup and Inspection	$2,660	# of Setups
Admin Support*	$8,800	# of Security Systems

Under the activity-based costing system, what is the cost per unit of the Standard and Supreme systems for the upcoming month?

(^*Admin Support: the admin support cost is expected to decrease drastically starting next year due to automation)

3. Suppose the Standard system sells for $274 per unit, and the Supreme system sells for $650 per unit. Using the per-unit costs from part 2, calculate the profitability of one unit of each system. Do both systems generate a profit on a per-unit basis? If not, would you recommend discontinuing that product line? What information would you need before offering a recommendation?