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Kyle Richaiu

BA S28
Case 1u
Bue: Novembei 16, 2uu9

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1. 0se the oveiheau cost activity analysis in Exhibit S anu othei uata on
manufactuiing costs to estimate piouuct costs foi values, pumps anu flow
contiolleis.
The Total Costunits aie:
valves: $S7.7S
Pumps: $48.u7
Flow Contiolleis: $1uu.S7

Product Costs/unit Valves Pumps
Flow
Controllers
Material $16.00 $20.00 $22.00
Direct Labor $4.00 $8.00 $6.40
Machine Depreciation $12.50 $12.50 $5.00
Setup Labor $0.02 $0.05 $0.48
Receiving $0.08 $0.31 $3.88
Materials Handling $0.83 $3.10 $38.76
Engineering $2.67 $1.60 $12.50
Packing and Shipping $0.27 $1.12 $11.00
Maintenance $1.39 $1.39 $0.56
Total Cost/unit $37.75 $48.07 $100.57

2. Compaie the estimateu costs you calculate to existing stanuaiu unit costs
(Exhibit S) anu ieviseu unit costs (Exhibit 4). What causes the uiffeient
piouuct costing methous to piouuce such uiffeient iesults.
Biffeient piouuct costing piouuces such uiffeient iesults because the
allocation of oveiheau costs changes with each methou. In stanuaiu
baseu costing, the allocation of oveiheau is uone baseu on peicentage
of uiiect laboi, iegaiuless if one has moie engineeiing time spent on it
(such as foi flow contiolleis). Reviseu unit costing is allocating costs
foi some, but not all of the oveiheau. Activity baseu costing is moie
iepiesentational of the costs to piouuce an item because all the cost
aie accounteu foi on a pei item basis baseu on usage of each iesouice.






S. What aie stiategic implication of youi analysis. What actions woulu you
iecommenu to the manageis at Bestin Biass Piouucts Co.
The stiategic implications of the analysis aie that Bestin Biass
Piouucts is actually selling the flow contiolleis at a loss anu even
thiough they the piices on pumps keep loweiing, they aie making a
4u% gioss maigin cuiiently. Theii flow contiolleis aie unueivalueu
in the maiket, which explains why they coulu inciease piices with out
Valves Pumps Flow Controllers
Activity Based Costing $37.75 $48.07 $100.57
Standard Unit Costing $37.55 $63.10 $56.48
Revised Unit Costing $49.00 $58.95 $47.97
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seeing any change in uemanu. It also explains why the piices keep
loweiing on pumps. Theie is a $1S uiffeience between wheie the
stanuaiu unit costing anu activity baseu costing places the suggesteu
maiket value. The company can continue to lowei theii piices on
pumps until they ieach $7S.9S, which is SS% gioss maigin.

Activity Based Costing $37.75 $48.07 $100.57
Planned GM (%) 35.0% 35.0% 35.0%
Actual Selling Price $57.78 $81.26 $97.07
Actual GM (%) 34.66% 40.84% -3.61%
Suggested Selling Point
(to keep 35% GM)
$58.08 $73.95 $154.72


4. Assume that inteiest in a new basis foi cost accounting at Bestin Biass
Piouucts iemains high. In the following month, quantities piouuceu anu
solu, activities, anu costs weie all at stanuaiu. Bow much highei oi lowei
with the net income iepoiteu unuei the activity-tiansaction-baseu system be
than the net income that will be iepoiteu unuei the piesent
Theie woulu be no change in oveiall net income, although theie
woulu be change in the net income pei item. Biffeient costing
methous uo not change amount eaineu oi iealizeu, they only the way
of iepoiting costs. Although if the company wisheu to iemain selling
at a gioss maigin of SS%, theii net income woulu change because
theii selling point woulu change. The suggesteu selling points foi
SS% gioss maigin aie listeu in question S. This woulu iesult in an
inciease in net income of $1S1,94u.Su. If the company wisheu to keep
theii cuiient maigins on top of theii ieviseu unit costing, this woulu
iesult in a net income inciease of $7S,29u.22.

Total
Std. Qty Sold 7500 12500 4000
Std. Price $57.78 $81.26 $97.07
Std. Unit Cost $37.56 $63.12 $56.50
Std. Net Income $151,650.00 $226,750.00 $162,280.00 $540,680.00
35% GM ABC Price $58.08 $73.95 $154.72
35% GM ABC Unit Cost $37.75 $48.07 $100.57
35% GM ABC Net
Income $152,459.21 $323,546.34 $216,614.96 $692,620.50
Actual GM from Last
Month 35.0% 22.3% 41.8%
Actual GM Price $58.08 $61.88 $172.79
Actual GM Net Income $152,424.33 $172,684.00 $288,861.89 $613,970.22

Exhibit 6
Question 1
Product Costs/unit Valves Pumps Flow Controllers
Material 16.00 $ 20.00 $ 22.00 $
Direct Labor 4.00 $ 8.00 $ 6.40 $
Machine Depreciation 12.50 $ 12.50 $ 5.00 $
Setup Labor 0.02 $ 0.05 $ 0.48 $
Receiving 0.08 $ 0.31 $ 3.88 $
Materials Handling 0.83 $ 3.10 $ 38.76 $
Engineering 2.67 $ 1.60 $ 12.50 $
Packing and Shipping 0.27 $ 1.12 $ 11.00 $
Maintenance 1.39 $ 1.39 $ 0.56 $
Total Cost/unit 37.75 $ 48.07 $ 100.57 $
Planned GM (%) 35.0% 35.0% 35.0%
Last Month
Actual Selling Price 57.78 $ 81.26 $ 97.07 $
Actual GM (%) 34.7% 40.8% -3.6%
Question 2
Valves Pumps Flow Controllers
Activity Based Costing 37.75 $ 48.07 $ 100.57 $
Standard Unit Costing 37.55 $ 63.10 $ 56.48 $
Revised Unit Costing 49.00 $ 58.95 $ 47.97 $
Question 3
Activity Based Costing 37.75 $ 48.07 $ 100.57 $
Planned GM (%) 35.0% 35.0% 35.0%
Actual Selling Price 57.78 $ 81.26 $ 97.07 $
Actual GM (%) 34.66% 40.84% -3.61%
Question 4
Total
Std. Qty Sold 7500 12500 4000
Std. Price 57.78 $ 81.26 $ 97.07 $
Std. Unit Cost 37.56 $ 63.12 $ 56.50 $
Std. Net Income 151,650.00 $ 226,750.00 $ 162,280.00 $ 540,680.00 $
35% GM ABC Price 58.08 $ 73.95 $ 154.72 $
35% GM ABC Unit Cost 37.75 $ 48.07 $ 100.57 $
35% GM ABC Net Income 152,459.21 $ 323,546.34 $ 216,614.96 $ 692,620.50 $
Actual GM from Last Month 35.0% 22.3% 41.8%
Actual GM Price 58.08 $ 61.88 $ 172.79 $
Actual GM Net Income 152,424.33 $ 172,684.00 $ 288,861.89 $ 613,970.22 $
154.72 $
Suggested Selling Point (to
keep 35% GM)
58.08 $ 73.95 $