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 Direct Labour ($20/hour) Manufacturing overhead ($38 per DLH) Total per unit cost $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 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 5,000 75,000 11,000 Machine setups Machine hours Inspections 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 Direct Materials Direct Labour ($20/hour) Manufacturing overhead ($38 per DLH) Total per unit cost $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 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 5,000 75,000 11,000 Machine setups Machine hours Inspections 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.
Chapter6: Activity-based, Variable, And Absorption Costing
Section: Chapter Questions
Problem 6PA: Box Springs, Inc., makes two sizes of box springs: twin and double. The direct material for the twin...
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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
Direct Materials
Direct Labour ($20/hour)
Manufacturing overhead ($38 per DLH)
Total per unit cost
$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
Transcribed Image Text: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
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
5,000
75,000
11,000
Machine setups
Machine hours
Inspections
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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