Preview

Destin Brass Case Summary

Good Essays
Open Document
Open Document
559 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Destin Brass Case Summary
Case Study: Destin Brass Products Co. Hsien-Da Lin 003253093 1. By using activity-based costing method, we can reallocate the overhead costs into three product lines based on four activities, which are numbers of used set up labor hours, percentage of transaction and machine usage, and numbers of machine hours used. Next, we add up the direct material, direct labor and overhead costs of each product line. After that, we divided the results by total production units. We get valve unit cost=$37.70, pump unit cost=$48.79, flow controller unit cost=$100.91. ( see table 1)

2. Standard unit costs and revised unit costs both show that the highest product cost is pump product line. However, our transaction-based analysis shows it should be the flow controllers. We can tell that the unit costs have been badly distorted as a result of using single allocation basis (production-run labor cost).
…show more content…
The strategies that I would recommend to the company are: a. Cutting the price of pumps to better compete with other suppliers in the market. Comparing the product cost between the new activity-based system and traditional system, we can easily find out that the company has been overestimated the pump cost. Thus, they thought the profit margin should be merely 22%. By reallocating the overhead costs more accurately, we found the profit margin should be doubled to 40%. (Table 2) The number shows that the profit margin of pump is much higher than their estimation.
Besides, the competitors in market have been cutting prices to attract more customers and opportunities. We suggest the company should start cutting the pump price to better compete with those pump suppliers in the market. b. Increase the price of flow controllers or give up the product

You May Also Find These Documents Helpful

  • Satisfactory Essays

    Costing methodology: The two different cost allocation methods – Plant-wide cost allocation based on direct labor hours (LHM) and Activity-Based Costing (ABC) – provide substantial different results. These results are shown in Exhibits 1, 2a, and 2b. Due to the characteristics of SDM operations and its cost structure – three different labels, with high incidence of non-labor costs – I recommend to use the ABC method for allocating the overhead costs.…

    • 780 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    kins Inc. has two types of handbags: standard and custom. The controller has decided to use a plantwide overhead rate based on direct labor costs. The president has heard of activity-based costing and wants to see how the results would differ if this system were used. Two activity cost pools were developed: machining and machine setup. Presented below is information related to the company’s operations.…

    • 391 Words
    • 3 Pages
    Satisfactory Essays
  • Powerful Essays

    Jet2 Task 2

    • 3870 Words
    • 11 Pages

    The third area of concern has to do with utility costs. Included in the manufacturing overhead budget under facility in general operations level costs $55,747 is budgeted for utilities and services. This figure appears again on the budgeted schedule of cost of goods…

    • 3870 Words
    • 11 Pages
    Powerful Essays
  • Satisfactory Essays

    Acc349 Reflection Summary

    • 297 Words
    • 2 Pages

    One advantage of Activity-Based Costing system is it has more accurate overhead cost allocation because there are more cost pools, the costs in each pool are more similar, and allocation is based on activities that cause overhead costs. It is more effective overhead cost control by focusing on processes or activities and focuses on relevant factors by assigning costs to any cost object that is of interest to management. Lastly, it allows better management of activities by helping managers identify the causes of costs and the activities driving them. The disadvantages of Activity-Based Costing are its cost to implement and maintain ABC requires management commitment and financial resources and its uncertainty with decisions remain and management must interpret ABC data with caution in making managerial decisions.…

    • 297 Words
    • 2 Pages
    Satisfactory Essays
  • Better Essays

    To Build or Buy

    • 1804 Words
    • 8 Pages

    Secondly, the price of the products will be lowered in anticipation of the large economies of scale that the firm will be able to enjoy. Due to the high levels of projected sales due to the variety of the products of the firm, the focus will be on the ability of the firm to be able to offer lower prices to the customers. The effects of the economic crisis for instance…

    • 1804 Words
    • 8 Pages
    Better Essays
  • Satisfactory Essays

    Bidgeton Survey

    • 262 Words
    • 2 Pages

    Cost of Product A103 : Direct Labor cost ($2.36 (0.185 labor hours * 12.76/hr)) + Direct Materials ($6.44) + Overhead cost (Direct Labor Overhead cost ($4.84 (2.05 * 0.185 labor hours * 12.76/hr)) + Machine Hours Overhead cost ($8.54 (27.56 * 0.310)) =…

    • 262 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Assignment Ch05

    • 2745 Words
    • 25 Pages

    (b) Suppose that energy costs of $4,000 per month to run the machinery have also been inadvertently overlooked for inclusion in the cost system. How should the activity-based cost model be updated to include this cost, and what will be the effect on the machine hour rate?…

    • 2745 Words
    • 25 Pages
    Good Essays
  • Satisfactory Essays

    dsc2006 mock term paper

    • 2201 Words
    • 9 Pages

    d) the use of pricing to increase the profit generated from a limited supply of…

    • 2201 Words
    • 9 Pages
    Satisfactory Essays
  • Good Essays

    Muenenster Pup Essay

    • 711 Words
    • 3 Pages

    In the event they are unable to generate more revenue, then employees from the top down should consider a cut in pay or benefits in order to buy management some time to create a new strategy and direction for the company. The case housing pumps must be able to be marketed as a product above the competitor’s product. For example, there is a large market for Mac computers. A person can buy a PC for $200 dollars but will buy a Mac for $2000 in the name of quality. If indeed the Muenster pump case housing is a higher quality then the price may fit, but the product must withstand…

    • 711 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Wilkerson Case Study1

    • 1513 Words
    • 9 Pages

    Wilkerson Company would like to be making 35% gross margin on all three products, but the competitors have continually lowered the prices of their pumps. This forced Robert Parker (President of Wilkerson Company) to also lower the company’s price of pumps to maintain volume and status as a major supplier. Unfortunately, this has brought the gross margin for pumps DOWN (below 20%). Wilkerson Company’s competitive situation is to continue competing in the manufacturing of pumps while meeting planned gross margins of 35%.…

    • 1513 Words
    • 9 Pages
    Powerful Essays
  • Powerful Essays

    Traditionally, companies used costing based solely on direct labor or machine hours in order to allocate indirect costs to products. A more recent approach is the Activity Based Costing (ABC) that first accumulates overhead costs for each of the activities of an organization, and then assigns the costs of activities to the products, services, or other cost objects that caused that activity.…

    • 3368 Words
    • 14 Pages
    Powerful Essays
  • Powerful Essays

    Founded in 1869 The Pillsbury Company began as a flour milling firm in Minnesota. This company was then bought by Grand Metropolitan (GrandMet) in 1989, a UK-based consumer goods and retail corporation who sought to become a world leader in branded food and drinks businesses. In 1994 Pillsbury - North America sector created 50% of GrandMet 's 1993 sales of 8 billion dollars due to their 75% market share of refrigerated dough. A choice was made by CEO of Pillsbury Paul S…

    • 2505 Words
    • 11 Pages
    Powerful Essays
  • Powerful Essays

    This case focuses on decision-making benefits of activity-based costing relative to the traditional approach. It also offers an opportunity to discuss the cost/ benefit trade-off between simple ABC systems versus refined systems, and the potential benefit of using capacity rather than expected sales when allocating fixed overhead costs. (Related to Chapter 4, Activity-Based Costing.)…

    • 11463 Words
    • 46 Pages
    Powerful Essays
  • Powerful Essays

    • There may be inaccuracies in the determination of the marginal cost, the assumption that marginal cost equals variable cost may itself be invalid, but even if this is acceptable then the assumption that all variable costs vary with volume is unrealistic. Some of these costs may be driven by factors other than volume. Again there is an assumption the unit variable cost is unchanging once it has been determined.…

    • 1255 Words
    • 6 Pages
    Powerful Essays
  • Good Essays

    Martin Brass Case Analysis

    • 1198 Words
    • 5 Pages

    Unless Tom Fuller, Vice President of Manufacturing for Martin Brass, can not quickly find an answer for the conflict brewing between Harry Smith and Jim Jones, the whole department will not only fall behind schedule, but they will also lose synergy within the company. The most acceptable undersired outcome would be that if Jim Jones does have to leave the company, he does so in good terms because of his business brought to the company from the local school board. The management decision variable would be to have both Jim Jones and Harry Smith work out their differences and begin a new relationship in which both employees feel comfortable and happy, this also includes them both working more efficiently, effectively, and professionally with each other.…

    • 1198 Words
    • 5 Pages
    Good Essays