# Question & Answer: sells for \$1,480, and a new model, the Majestic, which sells for \$1,270. The production cost computed per unit u…..

Problem 4-2A

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.

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Question & Answer: sells for \$1,480, and a new model, the Majestic, which sells for \$1,270. The production cost computed per unit u…..
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 Traditional Costing Royale Majestic Direct materials \$630 \$410 Direct labor (\$20 per hour) 120 100 Manufacturing overhead (\$42 per DLH) 252 210 Total per unit cost \$1,002 \$720

In 2017, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of \$42 per direct labor hour was determined by dividing total expected manufacturing overhead of \$8,315,710 by the total direct labor hours (200,000) for the two models.

Under traditional costing, the gross profit on the models was Royale \$478 (\$1,480 – \$1,002) and Majestic \$550 (\$1,270 – \$720). 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 Cost Drivers Estimated Overhead Expected Use of Cost Drivers Activity-Based Overhead Rate Purchasing Number of orders \$1,397,400 41,100 \$34/order Machine setups Number of setups 925,910 17,470 \$53/setup Machining Machine hours 5,222,800 118,700 \$44/hour Quality control Number of inspections 769,600 29,600 \$26/inspection

The cost drivers used for each product were:

 Cost Drivers Royale Majestic Total Purchase orders 17,900 23,200 41,100 Machine setups 4,870 12,600 17,470 Machine hours 74,600 44,100 118,700 Inspections 11,600 18,000 29,600

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 \$ \$

Calculate cost per unit of each model using ABC costing. (Round answers to 2 decimal places, e.g. 12.25.)

 Royale Majestic Cost per unit \$ \$

Calculate gross profit of each model using ABC costing. (Round answers to 2 decimal places, e.g. 12.25.)

 Royale Majestic Gross profit \$ \$