Question 2

Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $1,480, and a new model, the Majestic, which sells for $1,320. The production cost computed per unit under traditional costing for each model in 2020 was as follows.

Traditional Costing		Royale		Majestic
Direct materials		$600		$430
Direct labor ($20 per hour)		120		100
Manufacturing overhead ($41 per DLH)		246		205
Total per unit cost		$966		$735

In 2020, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $41 per direct labor hour was determined by dividing total estimated manufacturing overhead of $8,165,700 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross profit on the models was Royale $514 ($1,480 $966) and Majestic $585 ($1,320 $735). 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 Schultzs 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.

Activity Cost Pools		Cost Drivers		Estimated Overhead		Estimated Use of Cost Drivers		Activity-Based Overhead Rate
Purchasing		Number of orders		$1,293,600		39,200		$33/order
Machine setups		Number of setups		1,020,000		20,000		$51/setup
Machining		Machine hours		5,023,200		119,600		$42/hour
Quality control		Number of inspections		828,900		30,700		$27/inspection

The cost drivers used for each product were:

Cost Drivers		Royale		Majestic		Total
Purchase orders		17,000		22,200		39,200
Machine setups		6,000		14,000		20,000
Machine hours		75,000		44,600		119,600
Inspections		12,000		18,700		30,700

A: Assign the total 2020 manufacturing overhead costs to the two products using activity-based costing (ABC) and determine the overhead cost per unit. (Round cost per unit to 2 decimal places, e.g. 12.25.)

B1: Calculate cost per unit of each model using ABC costing

B2: Calculate gross profit of each model using ABC Costing