Applewood Electronics manufactures two large-screen television models, the Monarch, which has been produced for five years and sells for $900, and the Regal, a new model that sells for $1,140. Applewood's CEO, Harry Hazelwood, suggested that the company should concentrate its marketing resources on the Regal model and begin to phase out the Monarch model.

Applewood currently uses a traditional costing system. The following cost information has been used as a basis for pricing decisions over the past year.

Direct labor cost is $12 per hour, and the machine usage cost is $18 per hour. Manufacturing overhead costs were estimated at $4,800,000 and were allocated on the basis of machine hours.
Martin Alecks, the new company controller, suggested that an activity-based costing analysis first be run to get a better picture of the true manufacturing cost. The following data were collected:

REQUIRED

Selling, general, and administrative expenses per unit sold are $265.00 for Monarch and $244.50 for Regal.

A. Calculate the manufacturing cost per unit for Monarch and Regal under:

1. A traditional costing system

2. The ABC system

B. Explain the differences in manufacturing cost per unit calculated in part (A).

C. Calculate the operating profit per unit for Monarch and Regal under:

1. A traditional costing system

2. The ABC system

D. Should Applewood concentrates its marketing efforts on Monarch or on Regal? Explain how the use of ABC affects your recommendation.

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Per-Unit Data Direct materials Direct labor hours Machine hours Units produced Monarch $208 1.5 8.0 22,000 Regal $584 3.5 4.0 4,000 Activity Center Soldering Shipments Quality control Purchase orders Machining Machine setups Cost Driver Traceable Costs Number of solder joints Number of shipments Number of inspections Number of orders Machine hours Number of setups 942,000 860,000 1,240,000 950,400 57,600 750,000 $4,800,000 Total traceable costs Number of Events Activity Soldering Shipments Quality control Purchase orders Machining Machine setups Regal 385,000 3,800 21,300 109,980 16,000 14,000 Total Monarch 1,185,000 16,200 56,200 80,100 176,000 16,000 1,570,000 20,000 77,500 190,080 192,000 30,000