HI5017 Managerial Accounting - Tutorial Questions

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.

The cost drivers used:

Required:

1. Calculate the activity rates for each of the overhead items using the four cost drivers. (3 marks)
2. Using the rates in (1) determine the unit cost for TRI-X. (4 marks)
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. (4 marks)