TikTokElectronics 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 2019was as follows:
Traditional costing
TRIX
Direct materials
$ 700
Direct labour ($ 20/hr)
$ 120
Manufacturing overhead ($38 per DLH)
$ 228
Total per unit cost
$ 1048
In 2019, TikTok Electronics manufactured 26,000 units of TRI-X. Under traditional costing, the gross profit on TRI-Xwas $552 ($1,600-$1,048). Management is considering phasing out TRI-Xas it has continuously failed to reach the gross profit target of $600. Before finalizing its decision, management asks TikTokElectronics management accountant to prepare an 3analysis 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 overhead
Expected use of cost drivers
Purchasing
Number of hours
$ 1,200,000
40,000
MAchine setup
Number of setups
$ 900,000
18,000
Machining
Machine hours
$ 4,800,000
120,000
Quality control
Number of inspections
$ 700,000
28,000
The cost drivers used:
Cost Drivers
TRI-X Product
Purchase orders
17,000
Machine setups
5,000
75,000
Inspections
11,000
Required:
Already registered? Login
Not Account? Sign up
Enter your email address to reset your password
Back to Login? Click here