Prime Electronics, a division of Boisvert Corporation, manufactures two large-screen television models: the Mammoth, which has been produced since 2013 and sells for $973, and the Maximum, a newer model introduced in early 2015 that sells for $1,269.

Based on the following income statement for the year ended November 30, 2017, senior management at Boisvert have decided to concentrate Prime's marketing resources on the Maximum model and to begin to phase out the Mammoth model because Maximum generates a much bigger operating income per unit.

Prime Electronics
Income Statement for the
Fiscal Year Ended November 30, 2017
	Mammoth	Maximum	Total
Revenues	$23,352,000	$7,614,000	$30,966,000
Cost of goods sold	14,940,000	5,252,400	20,192,400
Gross margin	8,412,000	2,361,600	10,773,600
Selling and administrative expense	5,838,000	1,522,800	7,360,800
Operating income	$2,574,000	$838,800	$3,412,800
Units produced and sold	24,000	6,000
Operating income per unit sold	$107.25	$139.80

Details for cost of goods sold for Mammoth and Maximum are as follows.

		Mammoth		Maximum
		Total	Per Unit	Total	Per Unit
Direct materials		$5,486,400	$228.60	$3,856,200	$642.70
Direct manufacturing labour	(a)	468,000	19.50	273,000	45.50
Machine costs	(b)	3,705,600	154.40	463,200	77.20
Total direct costs		$9,660,000	$402.50	$4,592,400	$765.40
Manufacturing overhead costs	(c)	5,280,000	220.00	660,000	110.00
Total cost of goods sold		$14,940,000	$622.50	$5,252,400	$875.40

(a)	Mammoth requires 1.5 hours per unit and Maximum requires 3.5 hours per unit. The direct manufacturing labour cost is $13.00 per hour.
(b)	Machine costs include lease costs of the machine, repairs, and maintenance. Mammoth requires 8 machine-hours per unit and Maximum requires 4 machine-hours per unit. The machine-hour rate is $19.30 per hour.
(c)	Manufacturing overhead costs are allocated to products based on machine-hours at the rate of $27.50 per hour.

Prime controller, Seth Jackman, is advocating the use of activity-based costing and activity-based management and has gathered information about the company's manufacturing overhead costs for the year ended November 30, 2017. After completing his analysis, Jackman shows the results to Chet Campo, the Prime division president.

Units of the Cost-Allocation Base Mammoth Maximum Total 1,175,000 15,700 245,000 10,300 1,420,000 26,000 Activity Centre (Cost-Allocation Total Activity Base) Costs Soldering (number of solder points) $ 1,065,000 Shipments (number of shipments) 1,261,000 Quality control (number of inspections) 1,141,000 Purchase orders (number of orders) 1,170,000 Machine power (machine-hours) 57,000 Machine setups (number of setups) 1,246,000 $ 5,940,000 Total manufacturing overhead 51,800 85,900 175,900 18,200 109,100 14,100 70,000 195,000 190,000 16,600 18,400 35,000 Required 1. Using activity-based costing, calculate the gross margin per unit of the Maximum and Mammoth models. 2. Explain briefly why these numbers differ from the gross margin per unit of the Maximum and Mammoth models calculated using Prime's existing simple costing system 3. Comment on Campo's concerns about the accuracy and limitations of ABC. 4. How might Prime find the ABC information helpful in managing its business