TikTok Electronics manufactures an aluminium fibre tripod model “TRI-X” which sells for $1,600. The production cost computed per unit under traditional costing for each model in 2019 was as follows: Traditional Costing Direct Materials Direct Labour ($20/hour) Manufacturing overhead ($38 per DLH) Total per unit cost TRIX $700 $120 $228 $1, 048 In 2019, TikTok Electronics manufactured 26,000 units of TRI-X. Under traditional costing, the gross profit on TRI-X was $552 ($1,600-$1,048). Management is considering phasing out TRI- X as it has continuously failed to reach the gross profit target of $600. Before finalizing its decision, management asks TikTok Electronics management accountant to prepare an analysis using activity-based costing (ABC). The management accountant accumulates the following information about overhead for the year ended December 31, 2019. Activity Cost Pools Purchasing Machine setups Machining Quality Control Cost Drivers Number of orders Number of setups Machine hours Number of inspections Estimated Overhead $1,200,000 900,000 4,800,000 700,000 Expected Use of Cost Drivers 40,000 18,000 120,000 28,000 TRI-X Product 17,000 5,000 75,000 11,000. The cost drivers used displayed in the given image. Required: 1. Calculate the activity rates for each of the overhead items using the four cost drivers. 2. Using the rates in (1) determine the unit cost for TRI-X. 3. Calculate the gross profit of each model of TRI-X based on ABC costings and recommend whether or not TRI-X should be discontinued.
TikTok Electronics manufactures an aluminium fibre tripod model “TRI-X” which sells for $1,600. The production cost computed per unit under traditional costing for each model in 2019 was as follows:
Traditional Costing
Direct Materials
Direct Labour ($20/hour) Manufacturing
TRIX
$700 $120 $228 $1, 048
In 2019, TikTok Electronics manufactured 26,000 units of TRI-X. Under traditional costing, the gross profit on TRI-X was $552 ($1,600-$1,048). Management is considering phasing out TRI- X as it has continuously failed to reach the gross profit target of $600. Before finalizing its decision, management asks TikTok Electronics
Activity Cost Pools Purchasing
Machine setups
Machining Quality Control
Cost Drivers
Number of orders Number of setups Machine hours Number of inspections
Estimated Overhead $1,200,000
900,000
4,800,000 700,000
Expected Use of Cost Drivers 40,000
18,000
120,000 28,000
TRI-X Product
17,000 5,000 75,000 11,000. The cost drivers used displayed in the given image.
Required:
1. Calculate the activity rates for each of the overhead items using the four cost drivers.
2. Using the rates in (1) determine the unit cost for TRI-X.
3. Calculate the gross profit of each model of TRI-X based on ABC costings and recommend whether or not TRI-X should be discontinued.
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