P17.2A (LO 2), AP Writing Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $1,600, and a new model, the Majestic, which sells for $1,300. The production cost computed per unit under traditional costing for each model in 2022 was as follows. Traditional Costing Royale Majestic Direct materials $ 700 $420 Direct labor ($20 per hour) 120 100 Manufacturing overhead ($38 per DLH) 228 190 $1,048 $710 Total per unit cost In 2022, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $38 per direct labor hour was determined by dividing total estimated manufacturing overhead of $7,600,000 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross profit on the models was Royale $552 ($1,600 - $1,048) and Majestic $590 ($1,300 - $710). Because of this difference, management is considering phasing out the Royale model and increasing the production of the Majestic model. Before finalizing its decision, management asks Schultz's controller to prepare an analysis using activity-based costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2022. Activity Cost Pools Purchasing Machine setups Machining Quality control Cost Drivers Number of orders Number of setups Machine hours Number of inspections Estimated Overhead $1,200,000 900,000 4,800,000 700,000 Estimated Use of Cost Drivers 40,000 18,000 120,000 28,000 Activity Based Overhead Rate $30/order $50/setup $40/hour $25/inspection The cost drivers used for each product were: Cost Drivers Purchase orders Machine setups Machine hours Inspections Royale 17,000 5,000 75,000 11,000 Majestic 23,000 13,000 45,000 17,000 Total 40,000 18,000 120,000 28,000 Instructions a. Assign the total 2022 manufacturing overhead costs to the two products using activity-based costing (ABC) and determine the overhead cost per unit. b. What was the cost per unit and gross profit of each model using ABC? c. Are management's future plans for the two models sound? Explain