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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 $1,270. The
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 $1,270. The production cost computed per unit under traditional costing for each model in 2017 was as follows. Traditional Costing Direct materials Direct labor ($20 per hour) Manufacturing overhead ($43 per DLH) Total per unit cost Royale $600 120 258 $978 Majestic $410 100 215 $725 In 2017, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $43 per direct labor hour was determined by dividing total expected manufacturing overhead of $8,595,000 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross profit on the models was Royale $502 ($1,480 - $978) and Majestic $545 ($1,270 - $725). 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 Cost Pools Purchasing Machine setups Machining Quality control Cost Drivers Number of orders Number of setups Machine hours Number of inspections Estimated Overhead $1,343,100 959,400 5,404,500 888,000 Expected Use of Cost Drivers 40,700 18,450 120,100 29,600 Activity-Based Overhead Rate $33/order $52/setup $45/hour $30/inspection The cost drivers used for each product were: FS Cost Drivers Purchase orders Machine setups Machine hours Inspections Royale 16,900 5,050 74,400 11,000 Majestic 23,800 13,400 45,700 18,600 Total 40,700 18,450 120,100 29,600 *(a) Assign the total 2017 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.) Royale Majestic Total assigned costs " Cost per unit
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