Carla Vista Electronics Company manufactures two large-screen television models: the Deluxe, which has been produced for many years and sells for $1,000, and the Flat, a new model, which sells for $1,420. Based on the following income statement for 2022, the CFO at Carla Vista has decided to concentrate the marketing resources on the Flat model and to begin to phase out the Deluxe model. CARLA VISTAELECTRONICS COMPANY Income Statement Year Ended December 31, 2022 Flat Deluxe Total Sales $ 5,112,000 $ 20,000,000 $ 25,112,000 Cost of goods sold 3,067,200 12,880,000 15,947,200 Gross margin 2,044,800 7,120,000 9,164,800 Selling and administrative expenses 810,000 2,960,000 3,770,000 Net profit $1,234,800 4,160,000 $ 5,394,800 Units produced and sold 3,600 20,000 Net profit per unit sold $343 $208 $ The standard unit costs for the Flat and Deluxe models are as follows: Flat Deluxe Direct materials $590 $230 Direct labour: Flat (3.5 hrs. × $20/hr.) 70 Deluxe (1.5 hrs. * $20/hr.) 30 Machine usage: Flat (4 hrs. * $24/hr.) 96 Deluxe (8 hrs. × $24/hr.) 192 Manufacturing overhead 96 192 Standard cost $852 $644 Manufacturing overhead was applied on the basis of machine hours at a predetermined rate of $24 per hour. Carla Vista's CFO is in favour of using an activity-based costing system and has gathered the following information about the company's manufacturing overhead costs for 2022: Units of the Cost Driver Activity Costs Activity Centres and Cost Drivers Soldering (number of solder joints) Flat 270,000 4,300 Total 1,370,000 $ 822,000 Shipments (number of shipments) 738,000 18,000 Quality control (number of inspections) 1,080,000 19,000 72,000 Purchase orders (number of orders) 576,000 99,000 144,000 Machine power (machine hours) 86,000 14,400 174,400 Machine set-ups (number of set-ups) 900,000 3,500 9,000 Total traceable costs $ 4,202,000 Deluxe 1,100,000 13,700 53,000 45,000 160,000 5,500 Using activity-based costing, calculate the gross margin for Flat model and Deluxe model. (Round per machine hour to 5 decimal places, e.g. 15.21156, other intermediate calculations to 2 decimal places, e.g. 15.25 and final answers to 2 decimal places, e.g. 15.25%.) Flat Deluxe Gross margin % % Using activity-based costing, determine whether Carla Vista Electronics should continue to emphasize the Flat model and phase out the Deluxe model. B & B Electronics with its plans to emphasize the Flat model and phase out the Deluxe model.
