CLASSIC PEN COMPANY

Currently applies overhead on the basis of direct labor cost. This makes machinery to be cleaned during transition from one color to another. Ink is filled in the pens after the colors are mixed. The Profits Started to Decrease With the Introduction of 4 Colors.Blue & Black. . All pens produced in one factory. Started Producing Red and Purple Pens As Well.SUMMARY BACKGROUND Produced 2 Pens.

070 14.000 24.35 1.000 13.000 25.000 130.000 10.000 Purple 1.Income Statement Blue Sales Direct Materials Direct Labor Manufacturing Overhead Total Manufacturing Costs Gross Margin Gross Margin % Unit Product Cost Production in Units 75.880 2.000 20.600 50.84% 1.800 5.000 30.950 4.650 550 200 600 1.230 20.000 Total 150.000 8.350 300 18.000 8.53% Applied OH %300 of direct labor cost .32 9.000 13.30 50.000 10.000 Black 60.18% 1.30 40.370 13.000 52.33% 1.400 11.000 Red 13.680 1.000 60.33% 1.230 20.000 65.

Activities and Activity Rates Activity Measure Production Planning Color Transition Bookkeeping Information Center Machinery. Energy and Maintenance Invoicing and Shipping # of Process Prep Time # of products # of Process Machine Hours # of products .

Energy and Maintenance Invoicing and Shipping Blue Production in Units Machine Hours Required/unit # of Process Prep Time/unit 50.33% 23. Energy and Maintenance Invoicing and Shipping # of Process Prep Time # of products # of Process Machine Hours # of products 30.000 0.000 Purple 1.00% 24.1 50 50 Red 9.1 12 48 # of Process Prep Time # of products # of Process Machine Hours # of products Black 40.00% 6.000 150 10.33% Activity Measure Production Planning Color Transition Bookkeeping Information Center Machinery.00% 13.000 0.000 100.1 38 228 .First Stage Allocation Activity Overhead Measure Consumption Production Planning Color Transition Bookkeeping Information Center Machinery.1 50 200 Total Activity 150 526 100.000 0.33% 3.000 0.

000 14.33% Overhead Costs 18.First Stage Allocation Activity Rates Production Planning Color Transition Bookkeeping Information Center Machinery.000 60.00% 13.000 .400 3.33% 3.33% 23.00% 6.600 8.00% 24.000 14. Energy and Maintenance Invoicing and Shipping Total # of Process Prep Time # of products # of Process Machine Hours # of products Overhead Consumption 30.000 2.

000 150 10. Energy and Maintenance Invoicing and Shipping # of Process Prep Time # of products # of Process Machine Hours # of products Total Activity 150 526 100.000 .000 100.Activity Rates Activity Measure Production Planning Color Transition Bookkeeping Information Center Machinery.

000 14.40 0.000 14.38 0.000 60.600 8.000 100.02 .000 150 10. Energy and Maintenance Invoicing and Shipping Total # of Process Prep Time # of products # of Process Machine Hours # of products Total Activity 150 526 100.000 Overhead Costs 18.04 53.000 2.33 1.Activity Rates Activity Measure Production Planning Color Transition Bookkeeping Information Center Machinery.000 Activity Rates 120 27.400 3.

000 0.1 50 200 Black 40.000 0.000 0.000 0.1 50 50 Red 9.Second Stage Allocation Blue Production in Units Machine Hours Required/unit # of Process Prep Time/unit 50.1 12 48 .1 38 228 Purple 1.

000 0.00 2.475.260.000 0.40 0.00 1.Second Stage Allocation Blue Black Production Planning Color Transition Bookkeeping Information Center Machinery.33 1.1 12 48 Activity Measure Production Planning Color Transition Bookkeeping Information Center Machinery.82 1.07 36.000.941.1 50 200 Red 4.29 1.600.666.440.83 324.00 800.314.95 Blue Production in Units Machine Hours Required/unit # of Process Prep Time/unit 50.00 140.000.560. Energy and Maintenance Invoicing and Shipping Total 6.49 Red 9.00 180.00 17.000 0. Energy and Maintenance Invoicing and Shipping Total # of Process Prep Time # of products # of Process Machine Hours # of products Activity Rates 120 27.67 5.1 50 50 Purple 1.440.1 38 228 Purple 1.00 2.67 1.00 23.07 6.592.590.00 20.02 .000.04 53.875.666.800.00 2.00 3.000.49 Black 40.368.00 6.00 14.00 1.00 5.241.000 0.026.38 0.67 7.00 640.00 1.

07 36.00 800.000.600.00 1.941.690.15 4.07) .000.666.83 324.00 640.000.00 2.00 1.00 180.241.400 3.49) (2.00 21.000 10.000 (7.368.000 14.67 5.230.35 14% 6.32 18% 1.00 2.34 18.67 7.000 8.000 130.000 2.00 14% 75.000 Red 13.95 16.00 4.800.950 4.51 24% 1.314.475.00 58.000 20.875.370.440.49 14.122.000 25.072.800 Purple 1.650 550 200 Total 150.18 6.026.00 140.00 5.34 1.680 1.00 6.Product Costing Blue Sales Direct Materials Direct Labor Overhead Production Planning Color Transition Bookkeeping Information Center Machinery.600 8.230 20.000 Black 60.05 21% 1.560.00 2.00 1.666.000.30 13% 1.124.440.30 15% 1.00 20.67 1.82 1. Energy and Maintenance Invoicing and Shipping Total Manufacturing Costs Gross Margin Gross Margin % Unit Product Cost vs Traditional Costing Gross Margin % Unit Product Cost 13% 1.260.000 14.29 1.49 -51% 2.00 45.058.340.00 20.600 50.07 -163% 4.

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