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 $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
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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