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Question 2 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 TRIX Direct Materials $700 Direct Labour ($20/hour) $120 Manufacturing overhead ($38 per DLH) $228 Total per unit cost $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 TRIX 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. 三 Activity Cost Cost Drivers Estimated Expected Use of Pools Overhead Cost Drivers Purchasing Number of $1,200,000 40,000 orders Machine setups Number of 900,000 18,000 setups Machining Machine hours 4,800,000 120,000 Quality Control Number of 700,000 28,000 inspections The cost drivers used: 言 Cost Drivers TRI-X Product Purchase orders 17,000 Machine setups 5,000 Machine hours 75,000 Inspections 11,000 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. SHOW YOUR WORKING

Question 2 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 TRIX Direct Materials $700 Direct Labour ($20/hour) $120 Manufacturing overhead ($38 per DLH) $228 Total per unit cost $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 TRIX 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. 三 Activity Cost Cost Drivers Estimated Expected Use of Pools Overhead Cost Drivers Purchasing Number of $1,200,000 40,000 orders Machine setups Number of 900,000 18,000 setups Machining Machine hours 4,800,000 120,000 Quality Control Number of 700,000 28,000 inspections The cost drivers used: 言 Cost Drivers TRI-X Product Purchase orders 17,000 Machine setups 5,000 Machine hours 75,000 Inspections 11,000 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. SHOW YOUR WORKING

Financial & Managerial Accounting
Financial & Managerial Accounting
14th Edition
ISBN:9781337119207
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
Chapter18: Activity-Based Costing
Section: Chapter Questions
Problem 3ADM: Production run size and activity improvement Littlejohn, Inc. manufactures machined parts for the...
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Question 2 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 TRIX Direct Materials $700 Direct Labour ($20/hour) $120 Manufacturing overhead ($38 per DLH) $228 Total per unit cost $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 TRIX 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. 三 Activity Cost Cost Drivers Estimated Expected Use of Pools Overhead Cost Drivers Purchasing Number of $1,200,000 40,000 orders Machine setups Number of 900,000 18,000 setups Machining Machine hours 4,800,000 120,000 Quality Control Number of 700,000 28,000 inspections The cost drivers used: 言 Cost Drivers TRI-X Product Purchase orders 17,000 Machine setups 5,000 Machine hours 75,000 Inspections 11,000 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. SHOW YOUR WORKING
Transcribed Image Text:Question 2 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 TRIX Direct Materials $700 Direct Labour ($20/hour) $120 Manufacturing overhead ($38 per DLH) $228 Total per unit cost $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 TRIX 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. 三 Activity Cost Cost Drivers Estimated Expected Use of Pools Overhead Cost Drivers Purchasing Number of $1,200,000 40,000 orders Machine setups Number of 900,000 18,000 setups Machining Machine hours 4,800,000 120,000 Quality Control Number of 700,000 28,000 inspections The cost drivers used: 言 Cost Drivers TRI-X Product Purchase orders 17,000 Machine setups 5,000 Machine hours 75,000 Inspections 11,000 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. SHOW YOUR WORKING
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