SIR LTD.

CASE STUDY
1. Alarming increase in overhead recovery rates. (Estimated overheads/No. of hours)

Fixed OH recovery Functions are:

Variable OH recovery

Marketing- provides customer req to product design Production Dept gives the capacity(no. of hours) Product Design Finance ( cost) - Estimated OH are basically salary etc, which is provided by this dept

2. Product design Rubber auto component 2400 portfolio

3. Process Die, mixing of raw material, M1, M2, M3, M4.. 4. OH Absortion : Machine hour rate 5. Customer 6. Pricing = cost + % = 7. Marketing person is concerned with pricing and sales 8. Finance is concerned with certain products having low profitability Solutions: Product profitability measurements change Pricing strategy

After changed product profitability measurements, how to deal with negative profitability Base Price/price vs volume focus contribution Customer profitability

Learnings: Costing process has an impact on the decision making process It is important to understand the market and to what extent customers have a say in price determination Product profitability measurement full costing or marginal costing. This depends on the market situation Short run where capacity utilization is the key- marginal costing