Background: Elon Musk, the man who is responsible for revolutionizing the automo

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Background: Elon Musk, the man who is responsible for revolutionizing the automotive space is confused. Why you ask? He met with Ms. Static who explained to him that under the current allocation system, engineering costs amount to $46,880 per Model S and $15,630 per Model X. Elon responds: "How - Look at the Model X - its freaking awesome and is insanely over engineered. How can it cost leass than our base model?" he decides to hire you as a consultant to drive transperency into the costs … Problem: Develop ABC to clear the 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 ii What / How do you suspect Ms. Static arrived at her numbers? Background: Elon Musk, the man who is responsible for revolutionizing the automotive space is confused. Why you ask? He met with Ms. Static who explained to him that under the current allocation system, engineering costs amount to $46,880 per Model S and $15,630 per Model X. Elon responds: "How - Look at the Model X - its freaking awesome and is insanely over engineered. How can it cost leass than our base model?" he decides to hire you as a consultant to drive transperency into the costs … Problem: Develop ABC to clear the 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 ii What / How do you suspect Ms. Static arrived at her numbers? Background: Elon Musk, the man who is responsible for revolutionizing the automotive space is confused. Why you ask? He met with Ms. Static who explained to him that under the current allocation system, engineering costs amount to $46,880 per Model S and $15,630 per Model X, Elon responds How-Look at the Model X-its freaking awesome and is insanely over engineered. How can it cost leass than our base model?" he decides to hire you as a consultant to drive transperency into the costs Problem: Develop ABC to clear the mess up Cost Pool Machine S Materials Handli Utili Activity Costs Cost Driver 360,000 Setup Hours 100,000 Material (lbs Driver 4,000 20,000 40,000 40,000 Kw/hr Information by Product Units Direct Materials Direct Labor Setup Hours Materials Kw/Hr Model S Model x 20,000 54,000 40,000 240 3,000 4,000 4,000 42.000 S 24,000$ 200 1,000 2,000 What is the "true" profitability of Model S and Model X What/ How do you suspect Ms. Static arrived at her numbers? Knowing Tesla's business-are there additional things that you would look into in cost allocation? (Remember: Tesla has significant costs related to battery,R&D,software programming, Qaing, etc.) Should Tesla evaluate customer profitability analysis or product profitability analysis? Defend your choice with at least 2 advantages.

Explanation / Answer

(A) (B) (A)/(B) Activity cost driver Activity cost Driver Overhead Rate Machine Setup Setup Hours $         3,60,000.00 4000 $                  90.00 Material Handling Material (Lbs) $         1,00,000.00 20000 $                     5.00 Utility KW/H $             40,000.00 40000 $                     1.00 Model S Model X Units=(A) 4000 20000 Direct Material $                  42,000.00 $             54,000.00 Direct Labor $                  24,000.00 $             40,000.00 Machine Setup(200*$90) for Model S,(240*$90) for Model X $                  18,000.00 $             21,600.00 Material Handling(1000*$5) for Model S,(3000*$5) for Model X $                    5,000.00 $             15,000.00 Utiltiy(2000*$1) for Model S,(4000 *$1) for Model X $                    2,000.00 $               4,000.00 Total Cost=(B) $                  91,000.00 $         1,34,600.00 Cost per unit=(B)/(A) $                          22.75 $                        6.73

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