P4-2A Assign overhead to products using ABC and evaluate decision 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 2017 as follows. Traditional Costing Royale Majestic Direct materials $700 $420 Direct labor ($20 per hours) 120 100 Manufacturing overhead ($38 per DLH) 228 190 Total per unit cost $1,048 $710 In 2017, 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 expected 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, 2017. Activity Estimated Estimated Use Activity-Based Cost Pools Cost Drivers Overhead of Cost Drivers Overhead Rates Purchasing Number of orders $1,200,000 40,000 $30/order Machine setups Number of setups 900,000 18,000 $50/setup Machining Machine hours 4,800,000 120,000 $40/hour Quality control Number of inspections 700,000 28,000 $25/inspection The cost drivers used for each product were: Cost Drivers Royale Majestic Total Purchase orders 17,000 23,000 40,000 Machine setups 5,000 13,000 18,000 Machine hours 75,000 45,000 120,000 Inspections 11,000 17,000 28,000 Instructions (a) Assign the total 2017 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 costing? (c) Are management's future plans for the two models sound? Explain. NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .

After you have completed P4-2A, consider the additional question.

1. Assume that the purchase orders used by Royale and Majestic changed to 19,000 and 21,000 respectively.

Also assume that the number of inspections used by Royale and Majestic models changed to 12,000 and 16,000

respectively. Redo instsructions (a) to (c ) and round cost and gross profit per unit to two decimal points.