Background: Elon Musk, the man who is responsible for revolutionizing the automotive space is confused. Why you...

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Accounting

Background: ElonMusk, the man who is responsible for revolutionizing the automotivespace is confused. Why you ask?
He met with Ms. Static whoexplained to him that under the current allocation system,engineering costs amount to $46,880 per Model S and $15,630 perModel X. Elon responds:
"How - Look at the Model X -its freaking awesome and is insanely over engineered. How can itcost leass than our base model?" he decides to hire you as aconsultant to drive transperency into the costs …
Problem: Develop ABC to clearthe mess up
Cost Pool Activity Costs Cost Driver Driver
Machine Setup $                      360,000 Setup Hours                             4,000
Materials Handling $                      100,000 Material (lbs)                           20,000
Utility $                        40,000 Kw/hr                           40,000
Information by Product Model S Model X
Units                              4,000                   20,000
Direct Materials $                        42,000 $               54,000
Direct Labor $                        24,000 $               40,000
Setup Hours                                 200                        240
Materials                              1,000                     3,000
Kw/Hr                              2,000                     4,000
iii Knowing Tesla's business - are there additionalthings that you would look into in cost allocation? (Remember:Tesla has significant costs related to battery, R&D, softwareprogramming, Qaing, etc.)

Answer & Explanation Solved by verified expert

3.9 Ratings (760 Votes)

Activity Based Allocation per model Model S Model X DM 42000 54000 Allocation Basis DL 24000 40000 Model S Model X Machine Set Up 36000 43200 Machine Set Up 360000 Material Handling 5000 15000 Total Set Up Hrs 4000 200 240 Utilities 2000 4000 Allocation Total OH Cost Excluding DM and DL 43000 62200 3600002000200 36000 3600002000240 43200 Material Handling 100000 Total materials See Answer

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Background: ElonMusk, the man who is responsible for revolutionizing the automotivespace is confused. Why you ask?He met with Ms. Static whoexplained to him that under the current allocation system,engineering costs amount to $46,880 per Model S and $15,630 perModel X. Elon responds:"How - Look at the Model X -its freaking awesome and is insanely over engineered. How can itcost leass than our base model?" he decides to hire you as aconsultant to drive transperency into the costs …Problem: Develop ABC to clearthe mess upCost PoolActivity CostsCost DriverDriverMachine Setup$ 360,000Setup Hours 4,000Materials Handling$ 100,000Material (lbs) 20,000Utility$ 40,000Kw/hr 40,000Information by ProductModel SModel XUnits 4,000 20,000Direct Materials$ 42,000$ 54,000Direct Labor$ 24,000$ 40,000Setup Hours 200 240Materials 1,000 3,000Kw/Hr 2,000 4,000iiiKnowing Tesla's business - are there additionalthings that you would look into in cost allocation? (Remember:Tesla has significant costs related to battery, R&D, softwareprogramming, Qaing, etc.)

Background: ElonMusk, the man who is responsible for revolutionizing the automotivespace is confused. Why you ask?
He met with Ms. Static whoexplained to him that under the current allocation system,engineering costs amount to $46,880 per Model S and $15,630 perModel X. Elon responds:
"How - Look at the Model X -its freaking awesome and is insanely over engineered. How can itcost leass than our base model?" he decides to hire you as aconsultant to drive transperency into the costs …

Problem: Develop ABC to clearthe mess up

Cost Pool	Activity Costs	Cost Driver	Driver
Machine Setup	$ 360,000	Setup Hours	4,000
Materials Handling	$ 100,000	Material (lbs)	20,000
Utility	$ 40,000	Kw/hr	40,000


Information by Product	Model S	Model X
Units	4,000	20,000
Direct Materials	$ 42,000	$ 54,000
Direct Labor	$ 24,000	$ 40,000
Setup Hours	200	240
Materials	1,000	3,000
Kw/Hr	2,000	4,000




iii	Knowing Tesla's business - are there additionalthings that you would look into in cost allocation? (Remember:Tesla has significant costs related to battery, R&D, softwareprogramming, Qaing, etc.)