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Classic Pen Company Activity Based Costing
Classic Pen Company Activity Based Costing
13419
ANINDYA GANGULY
13406
ANURAG BOTHRA
13411
PRAGATI CHAUHAN
13435
RENJIT THOMAS
13440
Case Background
Blue
Black Red
Purpl
e
Sales
$75,00 $60,00 $13,95 $1,65
0
0
0
0
Material costs
$25,00 $20,00 $4,680 $550
0
0
Direct labour
$10,00 $8,000 $1,800 $200
0
Overhead @300%
$30,00 $24,00 $5,400 $600
0
0
Total operating cost $65,00 $52,00 $11,88 $1,35
0
0
0
0
Total operating
$10,00 $8,000 $2,070 $300
income
0
Return on sales
13.60 13.30 14.80 18.20
Total
$150,60
0
$50,230
$20,000
$60,000
$130,23
0
$20,370
13.50%
Indirect labor
50% of the indirect labor costs are caused by Produ
ction run
40% of the indirect labor cost were caused by the p
hysical change from one color to another called set
up costs
10% of the time was used to an activity Parts Admi
nistration (Book keeping)
Computer Expenses
20% allocated to support activities (Parts admin.)
80% of computer resources were used to produce
batches and are closely related to handling of produ
ction batches
Indirect Labour
50
%
Computer
System
Expenses
40
%
10
%
80
%
Production
Run
Machine
Expenses
(Machinery,
Maintenance
and Energy
Setup
Fringe Benefits
for DL
20
%
Parts
Administrati
on
Support
DL Fringe
$28,000
$8,000
(50% Fringe
Benefit)
$8,000
$10,000
$10,000
Machine
Expenses
$8,000
$4,000
$2,000
$14,000
Production Run
22,00
0
11,20
0
Production runs
150
146.67
526
21.29
Parts
Administration
Support
4,800
Parts
Administration
Machine hours
1200
10000
1.4
Direct labour
fringe
8,000
Direct labour
hours
2000
Set up
14,00
0
Purple
Total
$1760
$22,00
0
Production run
$7333.3
3
$7333.3
3
$5573.3
3
Set up
$4258.5
5
$1064.6
3
$1,200
$1,200
$1,200
$4,800
Support
$7,000
$5,600
$1,260
$140
$4,000
$3,200
$720
$80
$14,00
0
$8,000
Sales
Material costs
Direct labour
Overhead
Production run
Set up
Parts Administration
Support
Direct labour fringe
Total operating cost
Total operating
income
$7333
$1064.6
3
$1,200
$5,600
$3,200
$46,398
$1,200
$7,000
$4,000
$58,79
2
$16,20 $13,602
8
Purple
$1,650
$550
Total
$150,60
0
$50,230
$200
$20,000
$5573
$4,854.7
0
$1,200
$1,260
$720
$20,088
$1760
$1,022.0
5
$1,200
$140
$80
$4,952
$22,000
$11,200
-$6,138
-$3,302
$4,800
$14,000
$8,000
$130,23
0
$20,370
Blue
ABC
$1.17
cost/unit
Selling
$1.50
price/uni
t
Black
$1.15
Red
$2.23
Purple
$4.95
$1.50
$1.55
$1.65
Observation
Red color pens are sold at price less than its cost
Purple color pens are sold at much less price than its
cost