Classic Pen Company

Principles of Managerial Accounting
70-255-04

Classic Pen Company: Developing an ABC Model
Submitted to: Peter Roth

Submitted by: Jessica Bodnar
104042988
October 21st, 2014

Classic Pen Company are a low-cost producer of traditional blue and black pens. By adding red and purple pens they could add a 3% and 10% premium, respectively. Making the red and purple inks were more complicated but seemed more profitable, however their overall profit margins were going down. Using the Activity Based Costing method, Jane Dempsey, the controller of the Classic Pen Company, hopes she will have a more effective way at looking at the expenses.

1, 4, 5, 6 & 7. Activities, Activity measure, Activity volume, Activity rate, Activity costs

Activities

Activity volume
Activity measure
Activity rate
Activity costs
(volume/rate)
Machine set up
40% of Indirect Labour
8,000$
Total setup time (hours)
526
15.2
Production run
50% of Indirect Labour
80% of Computer System Expenses
10,000$
8,000$
Production runs
150
120
Parts administration
10% of Indirect Labour
20% of Computer System Expenses
2,000$
2,000$
Parts administration
4
1,000
Machine support
Machine Expenses
14,000$
Machine hours/unit
10,000
1.4
Direct labour fringe
Fringe Benefits
16,000$
Direct labour hours/unit
2,000
8

2. Activity cost pools:
Indirect labour
Fringe benefits for direct labour
Computer system expenses
Machine expenses

3. Resources consumed by individual activity cost pools:
Indirect Labour
Fringe Benefits
Computer Systems
Machinery
Maintenance
Expense

Blue
Black
Red
Purple
Total
Sales
75,000
60,000
13,950
1,650
150,600
Material Costs
25,000
20,000
4,680
550
50,230
Direct Labour
10,000
8,000
1,800
200
20,000
Overhead

Machine Set Up
3,040
760
3,465.60
729.60
7,995.20
Production Run
6,000
6,000
4,560
1,440
18,000
Parts Administration
1,000
1,000
1,000
1,000
4,000
Machine Support
7,000
5,600
1,260
140
14,000
Direct Labour Fringe
8,000
6,400
1,440
160
16,000
Total