(Solved): Smart Electronics manufactures two types of gaming consoles, models M-11 and R-24. Currently, the ...

Smart Electronics manufactures two types of gaming consoles, models M-11 and R-24. Currently, 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. Total Direct Costs Direct Labor Hours Used Selling Price per Unit Product Name Units Sold per Unit €10 €90 M-11 R-24 650 150 1,300 1,500 €30 €60 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 the actual manufacturing costs and product profitability for these gaming consoles. He also believes that 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 electronic gaming market, setting competitive prices is extremely crucial. The controller has decided to try activity-based costing and has gathered the following information. Number of Number of Material Components Movements Number of Setups 3 17 15 M-11 R-24 7 33 35 Total activity cost €20,000 €50,000 €10,000 The number of setups, number of components, and number of material movements have been identified as activity-cost drivers for overhead. Instructions: 1) Using the current costing system of the company, calculate the gross margin per unit for Model M11 and Model R24. Assume no beginning or ending inventory. Show your calculations 2) Using the ABC system of the company, calculate the gross margin per unit for Model M11 and Model R24. Assume no beginning or ending inventory. Show your calculations. 3) Which method do you prefer. Justify your answer.