Sippican Corporation

According to the activity based costing, the manufacturing overhead should be

apportioned in the following method
The Direct Material cost per unit and the direct labour cost per unit for the
valves, pumps and the flow controller is given below.

The total manufacturing overhead of $654600 should be apportioned based on

the activity required for manufacturing each of the valves, the pumps and the
flow controller. The various manufacturing overheads required for the production
is given below for each of the products.

Now, we know the overheads required for each of the products. Thus, we shall
now find out the cost of each product based on the activity based costing. This
can be found by including the direct material cost and the direct labour cost for
each of the product.

According to the traditional costing method and the ABC method, the cost of
valves , pumps and flow controller is given below

The gross margins % of valves and pumps were at a higher value when the
costing is done by the ABC method. But, the flow controller is sold at a price
lower than the cost price. Hence, it is advisable to increase the price of the Flow
Controller to atleast $98.7981 to realize any profit.