OB Electronics manufactures two home theatre systems: the Xtra which sells for $2,400, and a new model, the Preferred, which sells for $2,000. The production cost computed per unit under traditional costing for each model in 2017 was as follows.

Traditional Costing						Xtra		Preferred
Direct materials						$500		$350
Direct labor ($20 per hours)						100		80
Manufacturing overhead ($17.5 per DLH)						175		140
Total per unit cost						$775		$ 570

In 2017, OB manufactured 40,000 units of the Xtra and 60,000 units of the Preferred. The overhead rate of $17.50 per direct labor hour was determined by dividing total expected manufacturing overhead of $4,900,000 by the total direct labor hours (280,000) for the two models.

Under traditional costing, the gross profit on the models was: Xtra $1,625 or ($2,400 - $775), and Preferred $1,430 or ($2,000 - $570). Because of this difference, management is considering phasing out the Xtra model and increasing the production of the Preferred model.

Before finalizing its decision, management asks Oscars controller to prepare an analysis using activity-based costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2017.

	Activity						Estimated		Estimated Use		Activity-Based
	Cost Pools		Cost Drivers				Overhead		of Cost Drivers		Overhead Rates
	Purchasing		Number of orders				$ 750,000		50,000		15
	Machine setups		Number of setups				600,000		30,000		20
	Machining		Machine hours				3,100,000		100,000		31
	Quality control		Number of inspections				450,000		5,000		90

The cost drivers used for each product were:
			Cost Drivers		Xtra		Preferred		Total
			Purchase orders		20,000		30,000		50,000
			Machine setups		15,000		15,000		30,000
			Machine hours		40,000		60,000		100,000
			Inspections		2,000		3,000		5,000

Requirement

(a) Assign the total 2017 manufacturing overhead costs to the two products using activity-based costing (ABC).

(b) What was the cost per unit and gross profit of each model using ABC costing?