P5.37A (LO 2) Jacobson Electronics manufactures two HD television models: the Royale, which seris for $1.400, and a new model, the Majestic, which sells for $1,100. The production costs calculated per unit under traditional costing for cach model in 2020 were as follows: Traditional Costing Direct materials Direct labour ($20 per hour) Manufacturing overhead ($35 per direct labour hour) Total per-unit cost Royale $600 100 175 $875 Majestic $320 80 140 $540 In 2020, Jacobson manufactured 20,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $35 per direct labour hour was determined by dividing total estimated manufacturing overhead of $4.9 million by the total direct labour hours (140,000) for the two models. Under traditional costing, the gross profit on the models was $525 for the Royale (or $1,400 $875), and $560 for the Majestic (or $1,100 - $540). Because of this difference, management is consid- ering phasing out the Royale model and increasing the production of the Majestic model. Before finalizing its decision, management asks Jacobson'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, 2020: Estimated Estimated Use Activity-Based Activity Cost Pools Cost Drivers Overhead of Cost Drivers Overhead Rate Purchasing Number of orders $ 750,000 25,000 $30 per order Machine set-ups Number of set-ups 600,000 20,000 30 per set-up Machining Machine hours 3,100,000 100,000 31 per hour Quality control Number of inspections 450,000 5,000 90 per inspection The cost drivers used for each product were as follows: Cost Drivers Royale Majestic Total Purchase orders 11,250 13,750 25,000 Machine set-ups 10,000 10,000 20,000 Machine hours 40,000 60,000 100,000 Inspections 2,250 2,750 5.000 Instructions a. Assign the total 2020 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? Writing Are management's future plans for the two models sound? Explain