Problem 4-2A

Instructions (a) Under traditional product costing, compute the total unit cost of each product. 76 Prepare a simple comparative schedule of the individual costs by product (similar to Illustration 4-10 on page 152) (b) Under ABC, prepare a schedule showing the computations of the activity-based over- head rates (per cost driver) (c) Prepare a schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers. (Include a computation of overhead cost per unit, rounding to the nearest cent.) (d) Compute the total cost per unit for each product under ABC (e) Classify each of the activities as a value-added activity or a non-value-added activity. (f) Comment on (1) the comparative overhead cost per unit for the two products under o ABC, and (2) the comparative total costs per unit under traditional costing and ABC P4-2A Schultz Electronics manufactures two large-screen television models: the Royale which sells for $1,600, and a new model, the Majestic, which sells for $1,300. The pro- duction cost computed per unit under traditional costing for each model in 2014 was as follows Traditional Costing Royale Majestic Direct materials Direct labor ($20 per hour) Manufacturing overhead ($38 per DLH) Total per unit cost $700 120 228 $420 100 190 $710 $1,048 In 2014, 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 or ($1,600 $1,048), and Majestic $590 or ($1,300 $710). Because of this difference, management is considering phasing out the Royale model and increasing the produc- tion 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, 2014. Activity Expected Use of ase Overhead Rate $30/order $50/setup $40/hour $25/inspection Estimated Overhead Cost Drivers Cost Drivers Activities Purchasing Machine setups Machining Quality control Number of orders Number of setups Machine hours Number of inspections $1,200,000 40,000 18,000 4,800,000 120,000 28,000 900,000 700,000