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 $700 $120 $228 $1, 048 Direct Materials Direct Labour ($20/hour) Manufacturing overhead ($38 per DLH) Total per unit cost 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 usir based costing (ABC). The management accountant accumulates the following information about overhead for the year ended December 31, 2019. ctivity- Activity Cost Pools Cost Drivers Estimated Expected Use of Overhead Cost Drivers Purchasing Number of $1,200,000 40,000 orders Machine setups Number of 900,000 18,000 setups Machine hours Machining Quality Control 4,800,000 120,000 Number of 700,000 28,000 inspections The cost drivers used: 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.
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 $700 $120 $228 $1, 048 Direct Materials Direct Labour ($20/hour) Manufacturing overhead ($38 per DLH) Total per unit cost 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 usir based costing (ABC). The management accountant accumulates the following information about overhead for the year ended December 31, 2019. ctivity- Activity Cost Pools Cost Drivers Estimated Expected Use of Overhead Cost Drivers Purchasing Number of $1,200,000 40,000 orders Machine setups Number of 900,000 18,000 setups Machine hours Machining Quality Control 4,800,000 120,000 Number of 700,000 28,000 inspections The cost drivers used: 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.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter2: Basic Cost Management Concepts
Section: Chapter Questions
Problem 21E: Ellerson Company provided the following information for the last calendar year: During the year,...
Related questions
Question
Transcribed Image Text: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
$700
$120
$228
$1, 048
Direct Materials
Direct Labour ($20/hour)
Manufacturing overhead ($38 per DLH)
Total per unit cost
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,
anagement asks TikTok Electronics manag
based costing (ABC). The management accountant accumulates the following information about
overhead for the year ended December 31, 2019.
ent accountant to prepare an analysis using activity-
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
Machine hours
Machining
Quality Control
120,000
4,800,000
700,000
Number of
28,000
inspections
The cost drivers used:
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.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Principles of Cost Accounting
Accounting
ISBN:
9781305087408
Author:
Edward J. Vanderbeck, Maria R. Mitchell
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub