Question

Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $1,530, 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 Royale Majestic Direct materials $640 $400 Direct labor ($20 per hour) 120 100 Manufacturing overhead ($40 per DLH) 240 200 1,000 $700 Total per unit cost In 2017, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $40 per direct labor hour was determined by dividing total expected manufacturing overhead of $8,063,250 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross proft on the models was Royale $530 ($1,530- $1,000) and Majestic $570 ($1,270- $700). 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 Cost Drivers Overhead Cost Drivers Overhead Rate $1,283,200 40,100 $32/order Purchasing Number of orders 19,190 $55/setup Machine setups Number of setups 1,055,450 119,400 $42/hour Machining Machine hours 5,014,800 27,300 $26/inspection Quality control Number of inspections 709,800 The cost drivers used for each product were: Cost Drivers Royale Majestic Total Purchase orders 16,500 23,600 40,100 Machine setups 5,790 13,400 19,190 Machine hours 74,500 44,900 119,400 Inspections 10,900 16,400 27,300 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, eg. 12.25.) Royale Majestic $ Total assigned costs Cost per unit

What was the cost per unit of each model using ABC costing Round cost per unit to 2 decimal places

Cost per unit Royal: Majestic:

Answer 1

Assignment of total 2017 manufacturing overhead costs to the two products using ABC and determination of overhead cost per unit
Activity	Activity based overhead rate		Royale			Majestic
			Cost drivers		Assigned Cost	Cost drivers		Assigned Cost
Purchasing	$32.00	per order	16500	orders	$528,000.00	23600	orders	$755,200.00
Machine setups	$55.00	per setup	5790	setups	$318,450.00	13400	setups	$737,000.00
Machining	$42.00	per hour	74500	hours	$3,129,000.00	44900	hours	$1,885,800.00
Quality Control	$26.00	per inspection	10900	inspection	$283,400.00	16400	inspection	$426,400.00
Total Assigned Cost					$4,258,850.00			$3,804,400.00
/ Number of units manufactured					25000			10000
Overhead cost per unit					$170.35			$380.44
Calculation of cost per unit for each model
		Royale	Majestic
Direct Material		$640.00	$400.00
Direct Labor		$120.00	$100.00
Overhead cost		$170.35	$380.44
Cost per unit		$930.35	$880.44
Calculation of gross profit of each model using ABC costing
		Royale	Majestic
Selling price per unit		$1,530.00	$1,270.00
Less : Cost per unit		$930.35	$880.44
Gross Profit per unit		$599.65	$389.56