Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $1,480, and a new model, the Majestic, which sells for $1,270. The production cost computed per unit under traditional costing for each model in 2020 was as follows. Traditional Costing
Royale
Majestic
Direct materials
$650
$420
Direct labor ($20 per hour)
120
100
Manufacturing overhead ($42 per DLH)
252
210
Total per unit cost
$1,022
$730

In 2020, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $42 per direct labor hour was determined by dividing total estimated manufacturing overhead of $8,476,500 by the total direct labor hours (200,000) for the two models.

Under traditional costing, the gross profit on the models was Royale $458 ($1,480 – $1,022) and Majestic $540 ($1,270 – $730). 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.

Activity
Cost Pools
Cost Drivers
Estimated
Overhead
Estimated Use of
Cost Drivers
Activity-Based
Overhead Rate
Purchasing Number of orders $1,274,100 41,100 $31/order
Machine setups Number of setups 899,600 17,300 $52/setup
Machining Machine hours 5,427,000 120,600 $45/hour
Quality control Number of inspections 875,800 30,200 $29/inspection

The cost drivers used for each product were:

Cost Drivers
Royale
Majestic
Total
Purchase orders 18,000 23,100 41,100
Machine setups 5,000 12,300 17,300
Machine hours 75,000 45,600 120,600
Inspections 12,000 18,200 30,200
(a)
Assign the total 2020 manufacturing overhead costs to the two products using activity-based costing (ABC) and determine the overhead cost per unit. (Round cost per unit to 2 decimal places, e. g. 12.25.)
(b)
Calculate cost per unit of each model using ABC costing.
(c)
Calculate gross profit of each model using ABC costing.