Problem 4-2A Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $1,580, and a new model, the Majestic, which sells for $1,320. The production cost computed per unit under traditional costing for each model in 2017 was as follows. Traditional Costing Royale Majestic Direct materials Direct labor ($20 per hour) Manufacturing overhead ($40 per DLH) Total per unit cost $660 120 240 $1,020 $400 100 200 $700 In 2017, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $40 per direct labor hour was determined by dividing total expected manufacturing overhead of $8,021,760 by the total direct labor hours (200,000) for the two models Under traditional costing, the gross profit on the models was Royale $560 ($1,580 $1,020) and Majestic $620 ($1,320 - $700). 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 EstimatedExpected Use of Overhead Activity-Based Cost Drivers Cost Drivers Cost Pools Purchasing Machine setups Number of setups Machining Quality controNumber of inspections $1,305,600 927,160 5,052,600 736,400 40,800 17,830 120,300 26,300 Overhead Rate $32/order $52/setup $42/hour $28/inspection Number of orders Machine hours The cost drivers used for each product were: Cost Drivers Royale Majestic Total Purchase orders Machine setups Machine hours Inspections 17,900 4,830 75,600 10,200 22,900 13,000 44,700 16,100 40,800 17,830 120,300 26,300