Elliot-Jones manufactures two large-screen television models. The 65-inch flat-panel LED model has been in production since 2012 and sells for $900. The company introduced a 55-inch 4K ultra HD in 2016; it sells for $1,200.

The company’s income statement for the current year follows. Based on these results, management has decided to concentrate the company’s marketing efforts on the 4K ultra HD model and begin to phase out the LED model.

Mark Renn, Elliot-Jones’ controller, just attended a seminar on activity based costing and believes the company should implement such a system. He has gathered the following annual information to explore the possibility.

Required

a. Calculate the activity rate for each activity cost pool.

b. Allocate overhead costs to each of the products using activity-based costing.

c. Calculate the total product cost of each product using activity-based costing.

d. Are the product costs you calculated in part (c) the total costs of the two products? Why or why not?

e. Evaluate Elliot-Jones’ decision to focus on the 55”4K Ultra HD television and phase out the 65-inch LED television.

f. In what other ways could Elliot-Jones’ use the activity-based cost information calculated in part (c)?

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Elliot-Jones Income Statement For the Year Ended December 31 65" LED 55" 4K Ultra HD Total Sales revenue $ 18,000,000 $4,560,000 $22,560,000 Cost of goods sold 11,800,000 3,212,400 15,012,400 Gross margin Selling and administrative expenses 6,200,000 1,347,600 7,547,600 5,300,000 978,000 6,278,000 Operating income $ 900,000 $ 369,600 $ 1,269,600 Units produced and sold Operating income per unit sold 20,000 5,000 45.00 $ 73.92 The unit costs for the two television models are as follows: 65" LED 55" 4K Ultra HD Direct materials $352.00 $656.00 Direct labor 18.00 42.00 Manufacturing overhead 220.00 105.10 Total unit cost 590.00 803.10