P4-2A Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells 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 Assign overhead to products using ABC and evaluate decision for $1,600 and Traditional Costing Direct materials Direct labor ($20 per hours) Manufacturing overhead ($38 per DLH) Royale $700 120 228 $1,048 Majestic $420 100 190 $710 Total per unit cost 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 Under traditional costing, the gross profit on the models was Royale 552 ($1,600- $1,048) and Majestic $590 Before finalizing its decision, management asks Schultz's controller to prepare an analysis using activity-based total direct labor hours (200,000) for the two models. ($1,300 -$710). Because of this difference, management is considering phasing out the Royale model and increasing the production of the Majestic model costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2017 Activity Cost Pools Estimated Overheacd Estimated Use of Cost Drivers Activity-Based Rates $30/order $50/setup $40/hour Cost Drivers Purchasing Machine setups Machining Number of orders Number of setups Machine hours Number of inspections $1,200,000 900,000 4,800,000 700,000 40,000 18,000 120,000 28,000 $25/inspection Quality control The cost drivers used for each product were: Royale Purchase orders 17,000 5,000 75,000 11,000 Majestic 23,000 13,000 45,000 17,000 Cost Drivers Machine setups Machine hours Inspections Total 40,000 18,000 120,000 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 "?" (a) The allocation of total manufacturing overhead using activity-based costing is as follows: Total Overhead Royale Majestic Cost Assigned Drivers Used Cost Assigned Overhead Rate Purchase order@$30 Machine setups @$50 Machine hours @$40 Inspections @$25 Drivers Used Value Value Value Value Value Value Value Value Total assigned costs (a) Value Value Units produced (b) Cost per unit (a)+ (b) (b) The cost per unit and gross profit of each model under ABC costing were Direct materials Direct labor Manufacturing overhead Royale Value Value Value Majestic Value Value Value Total cost per unit Sales price per unit Cost per unit Value Value Value Value Gross profit per unit l(c) Are management's future plans for the two models sound? Explain. 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
