Abc classic pen

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ABC Classic Pen company case

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Abc classic pen

  1. 1. CLASSIC PEN COMPANY
  2. 2. SUMMARY BACKGROUND Produced 2 Pens- Blue & Black. Started Producing Red and Purple Pens As Well. The Profits Started to Decrease With the Introduction of 4 Colors. All pens produced in one factory. Ink is filled in the pens after the colors are mixed. This makes machinery to be cleaned during transition from one color to another. Currently applies overhead on the basis of direct labor cost.
  3. 3. Income Statement Blue Black Red Purple Total Sales 75.000 60.000 13.950 1.650 150.600 Direct Materials 25.000 20.000 4.680 550 50.230 Direct Labor 10.000 8.000 1.800 200 20.000 Manufacturing Overhead 30.000 24.000 5.400 600 60.000 Total Manufacturing Costs 65.000 52.000 11.880 1.350 130.230 Gross Margin 10.000 8.000 2.070 300 20.370 Gross Margin % 13,33% 13,33% 14,84% 18,18% Unit Product Cost 1,30 1,30 1,32 1,35 Production in Units 50.000 40.000 9.000 1.000 Applied OH %300 of direct labor cost 13,53%
  4. 4. Activities and Activity Rates Activity Measure Production Planning # of Process Color Transition Prep Time Bookkeeping # of products Information Center # of Process Machinery, Energy and Maintenance Machine Hours Invoicing and Shipping # of products
  5. 5. First Stage Allocation Activity Overhead Measure Consumption Production Planning # of Process 30,00% Color Transition Prep Time 24,00% Bookkeeping # of products Information Center # of Process 13,33% Machinery, Energy and Maintenance Machine Hours 23,33% Invoicing and Shipping # of products 3,33% 6,00% Activity Total Measure Activity Production Planning # of Process 150 Color Transition Prep Time 526 Bookkeeping # of products Information Center # of Process Machinery, Energy and Maintenance Machine Hours Invoicing and Shipping # of products Blue Production in Units Machine Hours Required/unit # of Process Prep Time/unit Black 50.000 40.000 100.000 150 10.000 100.000 Red Purple 9.000 1.000 0,1 0,1 0,1 0,1 50 50 38 12 200 50 228 48
  6. 6. First Stage Allocation Activity Rates Overhead Consumption Overhead Costs Production Planning # of Process 30,00% 18.000 Color Transition Prep Time 24,00% 14.400 Bookkeeping # of products 6,00% 3.600 Information Center # of Process 13,33% 8.000 Machinery, Energy and Maintenance Machine Hours 23,33% 14.000 Invoicing and Shipping # of products 3,33% 2.000 Total 60.000
  7. 7. Activity Rates Activity Total Measure Activity Production Planning # of Process 150 Color Transition Prep Time 526 Bookkeeping # of products Information Center # of Process Machinery, Energy and Maintenance Machine Hours Invoicing and Shipping # of products 100.000 150 10.000 100.000
  8. 8. Activity Rates Activity Total Overhead Activity Measure Activity Costs Rates Production Planning # of Process 150 18.000 Color Transition Prep Time 526 14.400 Bookkeeping # of products 100.000 3.600 Information Center # of Process 150 8.000 53,33 Machinery, Energy and Maintenance Machine Hours 10.000 14.000 1,40 Invoicing and Shipping # of products 100.000 2.000 Total 60.000 120 27,38 0,04 0,02
  9. 9. Second Stage Allocation Blue Production in Units Machine Hours Required/unit # of Process Prep Time/unit Black 50.000 40.000 Red Purple 9.000 1.000 0,1 0,1 0,1 0,1 50 50 38 12 200 50 228 48
  10. 10. Second Stage Allocation Blue Black Production Planning 6.000,00 6.000,00 4.560,00 1.440,00 Color Transition 5.475,29 1.368,82 6.241,83 1.314,07 Bookkeeping 1.800,00 1.440,00 324,00 36,00 Information Center 2.666,67 2.666,67 2.026,67 640,00 Machinery, Energy and Maintenance 7.000,00 5.600,00 1.260,00 140,00 Invoicing and Shipping 1.000,00 800,00 180,00 20,00 23.941,95 17.875,49 14.592,49 3.590,07 Total Blue Production in Units Black 50.000 Machine Hours Required/unit # of Process Prep Time/unit 40.000 Red Purple Red Purple 9.000 1.000 0,1 0,1 0,1 0,1 50 50 38 12 200 50 228 48 Activity Activity Measure Rates Production Planning # of Process Color Transition Prep Time Bookkeeping # of products Information Center # of Process Machinery, Energy and Maintenance Machine Hours Invoicing and Shipping # of products Total 120 27,38 0,04 53,33 1,40 0,02
  11. 11. Product Costing Blue Black Red Purple Total Sales 75.000 60.000 13.950 1.650 150.600 Direct Materials 25.000 20.000 4.680 550 50.230 Direct Labor 10.000 8.000 1.800 200 20.000 Production Planning 6.000,00 6.000,00 4.560,00 1.440,00 18.000 Color Transition 5.475,29 1.368,82 6.241,83 1.314,07 14.400 Bookkeeping 1.800,00 1.440,00 324,00 36,00 3.600 Information Center 2.666,67 2.666,67 2.026,67 640,00 8.000 Machinery, Energy and Maintenance 7.000,00 5.600,00 1.260,00 140,00 14.000 Invoicing and Shipping 1.000,00 800,00 180,00 20,00 2.000 58.941,95 45.875,49 21.072,49 4.340,07 130.230,00 16.058,05 14.124,51 Overhead Total Manufacturing Costs Gross Margin Gross Margin % 21% Unit Product Cost 1,18 24% 1,15 (7.122,49) (2.690,07) -51% -163% 2,34 20.370,00 14% 4,34 vs Traditional Costing Gross Margin % Unit Product Cost 13% 1,30 13% 1,30 15% 1,32 18% 1,35 14%

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