Schultz Electronics manufactures two large-screen television models: the Royale which sells for $1,600, and a new model, the Majestic, which sells for $1,300. The production cost computed per unit under traditional costing for each model in 2012 was as follows.

In 2012, 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 expected 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 or ($1,600 – $1,048), and Majestic $590 or ($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, 2012.

Instructions
(a) Assign the total 2012 manufacturing overhead costs to the two products using activity-based costing (ABC).
(b) What was the cost per unit and gross profit of each model using ABC costing?
(c) Are management's future plans for the two models sound?Explain.

Activity Based Overhead Rate $30/order 50/setup 40/hour Expected Use of Estimated Activities Purchasing Machin Machining Quality control Cost Drivers Overhead Cost Drivers Number of orders Number of setups Machine hours Number of inspections $1,200,000 900,000 4,800,000 700,000 40,000 18,000 120,000 28,000 25/inspection e setups Cost Drivers ole Mic Total Purchase orders Machine setups Machine hours75,000 45,000 20,000 Inspections 17,000 5,000 23,000 13,000 40,000 18,000 11,000 17,000 28,000