CLASSIC PEN COMPANY

SUMMARY BACKGROUND
Produced 2 Pens- Blue & Black.
Started Producing Red and Purple Pens As Well.
The Profits Started to Decrease With the
Introduction of 4 Colors.
All pens produced in one factory.
Ink is filled in the pens after the colors are
mixed. This makes machinery to be cleaned during
transition from one color to another.
Currently applies overhead on the basis of direct
labor cost.
Income Statement
Blue Black Red Purple Total
Sales 75.000 60.000 13.950 1.650 150.600
Direct Materials 25.000 20.000 4.680 550 50.230
Direct Labor 10.000 8.000 1.800 200 20.000
Manufacturing Overhead 30.000 24.000 5.400 600 60.000
Total Manufacturing Costs 65.000 52.000 11.880 1.350 130.230
Gross Margin 10.000 8.000 2.070 300 20.370
Gross Margin % 13,33% 13,33% 14,84% 18,18% 13,53%
Unit Product Cost 1,30 1,30 1,32 1,35
Production in Units 50.000 40.000 9.000 1.000
Applied OH %300 of direct labor cost
Activities and Activity Rates
Activity
Measure
Production Planning # of Process
Color Transition Prep Time
Bookkeeping # of products
Information Center # of Process
Machinery, Energy and Maintenance Machine Hours
Invoicing and Shipping # of products
First Stage Allocation
Activity Overhead
Measure Consumption
Production Planning # of Process 30,00%
Color Transition Prep Time 24,00%
Bookkeeping # of products 6,00%
Information Center # of Process 13,33%
Machinery, Energy and Maintenance Machine Hours 23,33%
Invoicing and Shipping # of products 3,33%
Activity Total
Measure Activity
Production Planning # of Process 150
Color Transition Prep Time 526
Bookkeeping # of products 100.000
Information Center # of Process 150
Machinery, Energy and Maintenance Machine Hours 10.000
Invoicing and Shipping # of products 100.000
Blue Black Red Purple
Production in Units 50.000 40.000 9.000 1.000
Machine Hours Required/unit 0,1 0,1 0,1 0,1
# of Process 50 50 38 12
Prep Time/unit 200 50 228 48
First Stage Allocation
Activity Overhead Overhead
Rates Consumption Costs
Production Planning # of Process 30,00% 18.000
Color Transition Prep Time 24,00% 14.400
Bookkeeping # of products 6,00% 3.600
Information Center # of Process 13,33% 8.000
Machinery, Energy and Maintenance Machine Hours 23,33% 14.000
Invoicing and Shipping # of products 3,33% 2.000
Total 60.000
Activity Rates
Activity Total
Measure Activity
Production Planning # of Process 150
Color Transition Prep Time 526
Bookkeeping # of products 100.000
Information Center # of Process 150
Machinery, Energy and Maintenance Machine Hours 10.000
Invoicing and Shipping # of products 100.000
Activity Rates
Activity Total Overhead Activity
Measure Activity Costs Rates
Production Planning # of Process 150 18.000 120
Color Transition Prep Time 526 14.400 27,38
Bookkeeping # of products 100.000 3.600 0,04
Information Center # of Process 150 8.000 53,33
Machinery, Energy and Maintenance Machine Hours 10.000 14.000 1,40
Invoicing and Shipping # of products 100.000 2.000 0,02
Total 60.000
Second Stage Allocation
Blue Black Red Purple
Production in Units 50.000 40.000 9.000 1.000
Machine Hours Required/unit 0,1 0,1 0,1 0,1
# of Process 50 50 38 12
Prep Time/unit 200 50 228 48
Second Stage Allocation
Activity Activity
Measure Rates
Production Planning # of Process 120
Color Transition Prep Time 27,38
Bookkeeping # of products 0,04
Information Center # of Process 53,33
Machinery, Energy and Maintenance Machine Hours 1,40
Invoicing and Shipping # of products 0,02
Total
Blue Black Red Purple
Production in Units 50.000 40.000 9.000 1.000
Machine Hours Required/unit 0,1 0,1 0,1 0,1
# of Process 50 50 38 12
Prep Time/unit 200 50 228 48
Blue Black Red Purple
Production Planning 6.000,00 6.000,00 4.560,00 1.440,00
Color Transition 5.475,29 1.368,82 6.241,83 1.314,07
Bookkeeping 1.800,00 1.440,00 324,00 36,00
Information Center 2.666,67 2.666,67 2.026,67 640,00
Machinery, Energy and Maintenance 7.000,00 5.600,00 1.260,00 140,00
Invoicing and Shipping 1.000,00 800,00 180,00 20,00
Total 23.941,95 17.875,49 14.592,49 3.590,07
Product Costing
Blue Black Red Purple Total
Sales 75.000 60.000 13.950 1.650 150.600
Direct Materials 25.000 20.000 4.680 550 50.230
Direct Labor 10.000 8.000 1.800 200 20.000
Overhead
Production Planning 6.000,00 6.000,00 4.560,00 1.440,00 18.000
Color Transition 5.475,29 1.368,82 6.241,83 1.314,07 14.400
Bookkeeping 1.800,00 1.440,00 324,00 36,00 3.600
Information Center 2.666,67 2.666,67 2.026,67 640,00 8.000
Machinery, Energy and Maintenance 7.000,00 5.600,00 1.260,00 140,00 14.000
Invoicing and Shipping 1.000,00 800,00 180,00 20,00 2.000
Total Manufacturing Costs 58.941,95 45.875,49 21.072,49 4.340,07 130.230,00
Gross Margin 16.058,05 14.124,51 (7.122,49) (2.690,07) 20.370,00
Gross Margin % 21% 24% -51% -163% 14%
Unit Product Cost 1,18 1,15 2,34 4,34
vs Traditional Costing
Gross Margin % 13% 13% 15% 18% 14%
Unit Product Cost 1,30 1,30 1,32 1,35