(Submit your responses to this question as a .pdf file. Show your calculations and clearly mark your final answers.)

A world-famous photographer of wild animals and nature, Pema sells framed prints of select photographs over the Internet. Regardless of the picture bought, she offers buyers a choice in framing: a plain black frame or a fancy frame with a certificate of authenticity. Based on initial cost estimates, Pema believes the Deluxe frames to be more profitable than the Standard frames. However, her profits have slipped every quarter even as the proportion of Deluxe frames sold has increased. She has asked for your help in figuring out what she might be doing wrong. She provides you with the following data:

	Deluxe	Standard
Units per year	1,000	5,000
Price per unit	$350	$210
Materials cost per unit	100	65
Labor cost per unit	75	50

She further informs you that her total overhead is $390,000 per year.

Submit responses to the following

1. What is the profit per unit for the Deluxe and Standard prints if Pema allocates all of the overhead to her products using labor as the allocation basis? (2 x 5 points = 10 points)
2. You dig into the details of Pemas costs and find that only $156,000 of the total overhead relates directly to labor. Of the remainder, $136,500 corresponds to batch-level activities and $58,500 to product-level activities. She runs separate batches for Deluxe and Standard pictures. The batch sizes are 50 prints per batch for Deluxe, 250 for Standard. The product-level costs, she believes, are equally attributable to both product lines. The remaining overhead costs relate to the rent on her studio, hosting the website, and other such business-sustaining actions. Prepare an activity-based costing income statement for Pema that includes the profitability of each product along with Pemas total profits. Include a line item for each cost pool and clearly indicate where the costs from each pool are allocated. (Note: you can assume Pema is operating at capacity for this question.) (13 points 2 x 5 + 3)
3. Provide two recommendations based on your answers to parts (A) and (B) for Pema to increase profitability? (2x2=4 points) (Two sentences or less each for a total of 4 sentences or less).