Question

Question 3 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 2020 was as follows. Royale $640 Traditional Costing Direct materials Direct labor ($20 per hour) Manufacturing overhead ($39 per DLH) Majestic $430 100 120 195 234 $994 Total per unit cost $725 In 2020, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $39 per direct labor hour was determined by dividing total estimated manufacturing overhead of $7,887,400 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross profit on the models was Royale $486 ($1,480 – $994) 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, 2020. Activity Cost Pools Estimated Overhead Activity-Based Overhead Rate Cost Drivers Purchasing Number of orders Machine setups Estimated Use of Cost Drivers 39,000 18,500 119,100 29,100 $1,209,000 980,500 4,883,100 814,800 Number of setups $31/order $53/setup $41/hour $28/inspection Machining Machine hours Number of inspections Quality control