Smart Electronics manufactures two types of gaming consoles, Models M$-11$ and R$-24.$ The company allocates overhead costs based on direct labor hours; the total overhead Cost for the past year was $$80,000.$ Additional cost information for the past year is presented below.

Smar Electronics Costs

Product Name Total Direct Units Direct cost Selling Price

Direct labor Sold per unit Per Unit

hours used

M$-1165013001090$

R$-2415015003060$

Recently, the company lost bids on a contract to sell Model M$-11$ to a local wholesaler and was informed that a competitor offered a much lower price. Smart's controller believes that the cost reports do not accurately reflect these gaming consoles' actual manufacturing costs and product profitability. He also believes there is enough variation in the production process for Models M$-11$ and R$-24$ to warrant a better cost allocation system. Given the nature of the electronics gaming market, setting competitive prices is crucial. The controller has decided to try activity$-$based costing and has gathered the following information.

Activity$-$based Costing

Number of Number $of$ Number $of$

of componants Material

Setups Movements

M$-1131715$

R$-24733$ $$10,00$

Total Activity

$cost$ $$20,000$ $$50,000$ $$10,000$

The number of setups, the number of components, and the number of material movements have been identified as activity$-$cost drivers for overhead.

Question $1$: using the Smart's current costing system, calculate the gross margin per unit for

Model M$-11$ and Model R$-24.$ Assume no beginning or ending inventory. Show the calculations.

Question $2)$: Using activity$-$based costing, calculate the gross gross margin Marting for Model M$-11$ and Model R$-24,$ assuming there is no beginning or ending inventory. Show calculation.

Question $3$: Describe how Smart Electronics can use activity$-$based costing information to formulate a more competitive pricing strategy. Be sure to include specific examples to justify the recommended approach.

Question $4$: Identify and explain two advantages and two disadvantages of activity$-$based costing.