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P4.2A (LO 2), AP Writing Schultz Electronics manufactures two ultra high-definition television mod- els: the Royale which sells for $1,600, and a new model, the Majestic, which sells for $1,300. The pro- duction cost computed per unit under traditional costing for each model in 2020 was as follows. Traditional Costing Direct materials Direct labor ($20 per hour) Manufacturing overhead ($38 per DLH) Total per unit cost Royale $ 700 120 228 Majestic $420 100 190 $1,048 $710 In 2020, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $38 per direct labor hour was determined by dividing total estimated manufacturing overhead of $7,600,000 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross profit on the models was Royale $552 ($1,600 $1,048) and Majestic $590 ($1,300 $710). 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. Estimated Overhead Estimated Use of Cost Drivers Activity Cost Pools Purchasing Machine setups Machining Quality control Cost Drivers Number of orders Number of setups Machine hours Number of inspections Activity- Based Overhead Rate $30/order $50/setup $40/hour $25/inspection $1,200,000 900,000 4,800,000 700,000 40,000 18,000 120,000 28,000 The cost drivers used for each product were: Total Cost Drivers Purchase orders Machine setups Machine hours Inspections Royale 17,000 5,000 75,000 11,000 Majestic 23,000 13,000 45,000 17,000 40,000 18,000 120,000 28,000 a. Royale $4,035,000 Instructions a. Assign the total 2020 manufacturing overhead costs to the two products using activity-based cost- ing (ABC) and determine the overhead cost per unit. b. What was the cost per unit and gross profit of each model using ABC? c. Are management's future plans for the two models sound? Explain. b. Cost/unit-Royale $981.40

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