BENTLEY UNIVERSITY

AC 310 Term Project

Matthew Dalle Ave, Michael Caramadre, Stephanie Filippetti, and Molly Rowe
12/9/2013

The company we interviewed is the Chauenburg Hose Group. The Chauenburg

Hose Group is privately held and located in 6 different countries with 9 manufacturing plants.
Their plants are located in the United States (Vegas, Texas, Massachusetts, Indiana), Germany,
France, Canada, and China. All companies are privately held and individual from each other. All
of these different manufacturing companies produce many different kinds of hoses. Their
products include items such as hoses for the medical industry, home appliance hoses, industrial
hoses, carpet cleaning hoses, blowing hoses, and many other kinds. They currently have about
130 million in sales for the year. For the sake of our project, we will focus on the American
location known as Flexaust for our numerical example but we will still touch on the company as
a whole in regards to its costing methods.
Flexaust is a manufacturing company headquartered in San Diego, California but with a
manufacturing facility in Amesbury, Massachusetts. The company has manufactured flexible
hose and ducting for industrial and commercial applications for over 75 years. Flexaust produces
a variety of hose products for applications involving areas such as air, dust, fume, and
lightweight materials. In total, the company has twelve different brands (Flexaust).
Manufacturing overhead allocation is an important aspect of manufacturing companies.
Activity based costing and activity based management are a set of tools adapted by some but not
all companies. Flexaust is not a company who has adapted the ABC method of accounting. For
many years, there has been focus on developing a more sophisticated costing system. Certain
systems in place currently use only one cost driver, distorting the overall cost estimate. Because
of this, researchers have dedicated time towards eliminating or mitigating such limitations. As a
result, activity based costing (ABC) systems have received attention (Velmurugan).

Activity based costing is a system for allocating manufacturing costs to various products.
Under ABC costing, costs are assigned based on specific activities. As a result, costs are
assigned more accurately than traditional methods. The greatest benefit of the ABC system is the
less arbitrary method of assigning costs. Because companies assign costs to only the products
requiring the activity rather than to each production activity, the cost of manufacturing a specific
product becomes more accurate and, as a result, the information is more useful to management
(Johnson). However, implementation of an ABC system requires a large amount of resources.
For smaller companies, ABC costing may not be feasible due to limited funds. Additionally, if
management does not have the knowledge to interpret the information provided by an ABC
system, the information may be misconstrued (Johnson).
Product costing and cost control
The way the Chauenburg Hose Group allocates its overhead and indirect costs is very
different from ABC costing and the standard costing systems for large companies. Chauenburg
Hose Group has all the normal indirect overhead costs that any manufacturing company would
have such as quality staff, production management staff, maintenance staff, utilities, rent for nonowned entities, and miscellaneous. But costs they also include in their indirect overhead are all
benefits for employees as well as any overtime even though these should be costed to direct
labor. We were not able to get a reason for why this is done but we can assume after
understanding how they allocate their indirect overhead that putting these direct costs into the
indirect overhead saves them money.
Chauenburg Hose Group allocates there overhead as a percentage of their Direct
Materials and Labor costs based on their P&L. The way this works is that they calculate their

Direct Materials and Direct Labor Cost and then judging from their P&L they calculate a
percentage of indirect costs they incurred over the period and charge that from their Direct Costs.
For example; if Direct Labor was 10 dollars and direct materials was 40 dollars, the total direct
cost are 50 dollars. If they then determine that their indirect costs are 35 percent based on the
P&L, they then multiply that 35 percent with the total direct costs to determine how much they
should allocate for their indirect overhead. This is applied in a general sense over the whole
entity and does not allocate to specific products that are made. This process is also individual to
each manufacturing plant and it is not done for the whole group. This is a way to protect the
whole company from going down if one company falls.

Works Cited
Flexaust. History, Mission & Vision. 2013. 26 November 2013.
<http://www.flexaust.com/about/history-mission-vision/>.
Johnson, Rose. "Traditional Costing Vs. Activity-Based Costing." Houston Chronicle. Houston:
Houston Chronicle, 2013.
Velmurugan, Manivannan Senthil. "The Success and Failure of Activity-Based Costing
Systems." Journal of Performance Management 23.2 (2011): 2-33.