ikTok 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 thefollowing information about overhead for the year ended December 31, 2019. Follow the image.  Required:

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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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 thefollowing information about overhead for the year ended December 31, 2019.

Follow the 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. 

Cost Drivers
Activity Cost
Pools
Purchasing
Estimated
Overhead
$1,200,000
Expected Use of
Cost Drivers
Number of
40,000
orders
Machine setups
Number of
900,000
18,000
setups
Machine hours
Machining
4,800,000
120,000
Quality Control
Number of
700,000
28,000
inspections
The cost drivers used:
Cost Drivers
Purchase orders
Machine setups
TRI-X Product
17,000
5,000
Machine hours
75,000
Inspections
11,000
Transcribed Image Text:Cost Drivers Activity Cost Pools Purchasing Estimated Overhead $1,200,000 Expected Use of Cost Drivers Number of 40,000 orders Machine setups Number of 900,000 18,000 setups Machine hours Machining 4,800,000 120,000 Quality Control Number of 700,000 28,000 inspections The cost drivers used: Cost Drivers Purchase orders Machine setups TRI-X Product 17,000 5,000 Machine hours 75,000 Inspections 11,000
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