Question

Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells f $1,630, and a new model, the Majestic, which sells for $1,320. The production cost computed per unit under traditional costing for each model in 2017 was as follows. or Traditional Costing Royale Majestic Direct materials $640 $430 Direct labor ($20 per hour) 120 100 Manufacturing overhead ($43 per DLH) 258 215 Total per unit cost $1,018 $745 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 $8,552,100 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross proft on the models was Royale $612 ($1,630-$1,018) and Majestic $575 ($1,320-$745). 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 Estimated Expected Use of Activity-Based Cost Pools DriversOverhead Cost Drivers Overhead Rate 40,200 $35/order Purchasing Number of orders$1,407,000 19,200 $54/setup Machine setups Number of setups 1,036,800 120,600$44/hour 5,306,400 MachiningMachine hours 29,700 $27/inspection 801,900 Quality control Number of inspections The cost drivers used for each product were:

Answer 1

1)	Cost Drivers			royale	majestic
	purchase orders			623000	784000
	machine setups			318600	718200
	machining			3300000	2006400
	quality control			288900	513000
	total cost assigned			4530500	4021600
	cost per unit			181.22	402.16
2)	cost per unti
				Royal	majestic
	Direct materials			640	430
	Direct labor			120	100
	overhead cost per unti			181.22	402.16
	cost per unit			941.22	932.16
3)	Gross profit
				Royal	majestic
	Sales			1,630	1,320
	cost per unit			912.82	909.64
	Gross profit			717.18	410.36	answer