The document compares the standard costing method and transaction-based costing method to allocate overhead costs and calculate the unit cost of production of valves, pumps, and flow controllers. While the standard costing method allocates overhead based on direct labor costs, the transaction-based method allocates different overhead costs like depreciation, setup labor, receiving, etc. based on the number of transactions for each activity. This results in different unit costs and profitability for each product under the two methods.

2. Manufacturing Cost ($)
Material 4 Components 5 components 10 components
Components * Price 16 20 22
Total Material 120,000 250,000 88,000 458,000
Labor ($16 /hr including employee benefits)
Set-up Labor (hr/production
run)
8 8 12
Total Set-up labor hours 8 40 120
168
Run Labor (hr/unit) 0.25 0.50 0.40
Total Run Labor hours 1,875 6,250 1,600 9,725
Machine Usage (hr/unit) 0.50 0.50 0.20
Total Machine Usage hours 3,750 6,250 800 10,800

3. Manufacturing Overhead ($)
Receiving 20,000
Materials Handling 200,000
Engineering 100,000
Packaging and Shipping 60,000
Maintenance 30,000
Total 410,000
M/c depreciation (units of production
method) 25$ per hour of use
270,000

4. Standard Method
Standard Unit Cost ($) Valves Pumps Flow Controllers
Material 16.00 20.00 22.00
Direct Labor 4.00 8.00 6.40
Overhead @ 439% of direct Labor 17.56 35.12 28.10
Standard Unit Cost 37.56 63.12 56.50
Overhead Cost ($)
Machine Depreciation 270,000
Set Up labor 2,688
Receiving 20,000
Materials handling 200,000
Engineering 100,000
Packaging and Shipping 60,000
Maintenance 30,000
Total 682,688
Total Run labor 155,600
Overhead Rate 439%

5. Revised Standard Cost ($) Valves Pumps Flow Controllers
Material 16.00 20.00 22.00
Material Overhead 7.68 9.60 10.56
Set-up Labor 0.02 0.05 0.48
Direct Labor 4.00 8.00 6.40
Other Overhead (M/c hr basis) 21.30 21.30 8.52
Revised Standard Cost 48.99 58.95 47.96
Machine Related Overhead ($) Other Overhead Cost ($)
Receiving 20,000 Machine Depreciation 270,000
Materials handling 200,000 Engineering 100,000
Total 220,000 Packaging and Shipping 60,000
Total Material 458,000 Maintenance 30,000
Overhead Absorption Rate 48% Total 460,000
Overhead Absorption Rate 42.59
Revised Method

6. Overhead Cost Activity Analysis Valves Pumps Flow Controllers Total
Receiving And Material Handling
Receive each component once per run
(Transactions)
4 25 100 129
3% 19% 78%
Handle each component once per run
(Transactions)
4 25 100 129
3% 19% 78%
Packaging and Shipping
One packing order per shipment
(Transactions)
1 7 22 30
3% 23% 73%
Engineering
Estimated engg work-order % 20% 30% 50%
Maintenance
Machine hr basis
3750 6250 800
35% 58% 7%
Overhead Cost Analysis Method

7. Item Total Cost Hours/Transaction Overhead cost rate
Machine Depreciation 270,000 10,800.00 25.00
Set Up labor 2,688 168.00 16.00
Receiving 20,000 129.00 155.04
Materials handling 200,000 129.00 1,550.39
Engineering 100,000 20/30/50
Packaging and Shipping 60,000 30.00 2,000.00
Maintenance 30,000 10,800.00 2.78
Total 682,688

8. Overhead Cost Activity Analysis Valves Pumps Flow Controllers
Direct Material 16.00 20.00 22.00
Direct Labor 4.00 8.00 6.40
Total Direct Cost 20.00 28.00 28.40
Overhead Cost
Machine Depreciation 93,750.00 156,250.00 20,000.00
Set Up labor 128.00 640.00 1,920.00
Receiving 620.16 3,875.97 15,503.88
Materials handling 6,201.55 38,759.69 155,038.76
Engineering 20,000.0 30,000.0 50,000.0
Packaging and Shipping 2,000.00 14,000.00 44,000.00
Maintenance 10,416.67 17,361.11 2,222.22
Total Overhead Cost 133,116.37 260,374.77 286,956.86
Overhead Cost per Unit 17.75 20.83 71.74
Total Cost Per Unit 37.75 48.83 100.14

9. Q1
Overhead Cost Activity Analysis Valves Pumps Flow Controllers
Direct Material 16.00 20.00 22.00
Direct Labor 4.00 8.00 6.40
Total Direct Cost 20.00 28.00 28.40
Overhead Cost
Machine Depreciation 93,750.00 156,250.00 20,000.00
Set Up labor 128.00 640.00 1,920.00
Receiving 620.16 3,875.97 15,503.88
Materials handling 6,201.55 38,759.69 155,038.76
Engineering 20,000.0 30,000.0 50,000.0
Packaging and Shipping 2,000.00 14,000.00 44,000.00
Maintenance 10,416.67 17,361.11 2,222.22
Total Overhead Cost 133,116.37 260,374.77 286,956.86
Overhead Cost per Unit 17.75 20.83 72.17
Total Cost Per Unit 37.75 48.83 100.57

10. Reason for difference in unit cost through both the methods:
 The Overhead cost allocation is different in both the methods
 Each method uses different cost driver
 Standard Unit Cost method uses labour cost to allocate overhead costs
 Revised unit method uses machine hours for allocation of overhead
costs
 Modern method uses each transaction to allocate each overhead
Method Valves Pumps Flow Controllers
Standard Unit Cost 37.56 63.12 56.50
Unit cost based on overhead allocation on transaction basis 37.75 48.83 100.57
Difference (0.19) 14.29 (44.07)
Revised Standard Cost 48.99 58.95 47.96
Unit cost based on overhead allocation on transaction basis 37.75 48.83 100.57
Difference 11.24 10.12 -52.61
Q2

11. Analysis:
 Based on different cost drivers used for allocating overhead costs, unt
cost in each method is different.
 Company should use transaction based method to maintain percentage
gross margin in pumps, they can even further reduce price of pumps
 Transaction method results in losses in sale of flow controller, thus
company need to increase price of Flow Controllers
 Company is not facing competition in Flow Controllers category, hence
they can increase price to achieve target of 35% gross margin
 Destin Brass could also improve process to reduce manufacturing cost
of Flow Controller
 Unit cost of Valve is same for Standard and Transaction bases method,
thus 35% gross margin is achievable
Q3

12. Standard Cost Method Valve Pumps Flow Controllers
Total Qty
7,500.00 12,500.00 4,000.00
Actual Selling Price 57.78 81.26 97.07
Revenue 433,350.00 1,015,750.00 388,280.00
Unit Cost 37.56 63.12 56.50
COGS 281,700.00 789,000.00 225,984.00
Gross Margin 151,650.00 226,750.00 162,296.00
Gross Margin(Total) 540,696.00
Transaction Cost Method Valve Pumps Flow Controllers
Total Qty 7,500.00 12,500.00 4,000.00
Actual Selling Price 57.78 81.26 97.07
Revenue 433,350.00 1,015,750.00 388,280.00
Unit Cost 37.75 48.83 100.57
COGS 283,116.37 610,374.77 402,280.00
Gross Margin 150,233.63 405,375.23 (14,000.00)
Gross Margin(Total) 541,608.86
Q4