Destin Brass Case Summary
Destin Brass Products Company, which started in 1984, used to only manufacture valves but now makes three items, valves, brass pumps and flow controllers. The company manufactures these three items because they all require the same skills and are used in water purification systems. One of Destin Brass’s challenges is that they face competition with their pumps due to the other company’s lower prices. Valves accounted for 24% of the total revenue of the company and has a gross margin of 35%. Pumps (which required the same set up) accounted for 55% of their revenue and their target margin was also 55%. As competition began reducing their prices, Destin Brass had a meeting to figure out how the company should allocate its costs on all three
items it produces since they believed that competition was using a different accounting method. They may have allowed lower costs of pumps for these other companies. Destin Brass presently used a “standard costing method” based on direct labor. With this method, the cost per unit of valves are $37.56, pumps are $63.12, and flow controllers are $56.50. (Exhibit A). If Destin Brass switches to the Activity Based Costing method, the cost for the valves would be $37.73, pumps would be $48.87, and the flow controllers would be $100.58 (exhibit C).
items it produces since they believed that competition was using a different accounting method. They may have allowed lower costs of pumps for these other companies. Destin Brass presently used a “standard costing method” based on direct labor. With this method, the cost per unit of valves are $37.56, pumps are $63.12, and flow controllers are $56.50. (Exhibit A). If Destin Brass switches to the Activity Based Costing method, the cost for the valves would be $37.73, pumps would be $48.87, and the flow controllers would be $100.58 (exhibit C).