Klein, Ltd. started operations five years ago; their only product was a radar detector known as the Bear. Last year Klein began to manufacture a second product, the Lion. Actual direct material costs are $20/unit for each Bear and $30/unit for each Lion. The actual direct labor wage is $15/DL hour. You may assume these actual dollar amounts have never changed. Klein's factory has two manufacturing departments: Assembly and Machining. Assembly is completely labor intensive, while Machining is fully automated; thus, an hour of Assembly is a direct labor hour, while an hour of Machining is a machine hour. Each Bear requires 2 hours of Assembly (no Machining is required). Each Lion requires 30 minutes of Assembly and 1 hour of Machining: Assembly Machining Bear 2.0 hours/unit 0.0 hours/unit Lion 0.5 hours/unit 1.0 hour/unit Budgeted VOH Budgeted fixed overhead (FOH) and budgeted variable overhead (VOH) costs for each department follow: Budgeted FOH $29,000 $200,000 Assembly Machining $10/DL hour $8/machine hour Klein uses an absorption costing system in which total budgeted factory overhead is accumulated in a single cost pool and allocated using total budgeted direct labor hours. Using this system, management computed and compared the gross margin of the two products. Although management is pleased with the Lion's success as indicated by this analysis, they are disappointed with the Bear's results and are considering dropping the Bear unless its profitability can be improved. For the period, management produced and sold 5,000 units of the Bear and 3,000 units of the Lion. The Bear sold for $72/unit; the Lion sold for $133/unit. You may assume that all actual amounts are identical to budgeted figures. Required: There are three parts to this problem. 1. Reproduce the unit gross margin calculations that management used to contrast the Bear and the Lion. Note that the DM + DL costs for the Bear are $50.00 and the DM + DL costs for the Lion are $37.50 (1 points). 2. Using a ABC costing system, calculate the absorption unit product costs of the Bear and the Lion. Again, note that the DM + DL costs for the Bear are $50.00 and for the Lion are $37.50 (2 points). 3. Should Klein drop the Bear? Support your answer with explicit calculations (2 points).