Calculations as per exhibit 5

Valves Pumps Flow controllers

Number of units 7500 12500 4000
No. of Runs 1 5 10

Material cost (Per unit $) 16 20 22

Direct Labour Cost (Per Unit $) 4 8 6.4
Set-Up Labour Cost (Per Unit $) 0.02 0.05 0.48
Overheads
Receiving 600 3800 15600
Materials Handling 6000 38000 156000
Engineering 20000 30000 50000
Packaging and Shipping 1800 13800 43800
Maintenance 10500 17400 2100
Depreciation 94500 156600 18900

Total Overheads ($) 133400 259600 286400

Overheads Per Unit ($) 17.7866666666667 20.768 71.6

Total Cost per Unit ($) 37.8066666666667 48.818 100.48

Selling Price per Unit ($) 57.78 81.26 97.07
Profitability 52.8301886792453 66.454996107993 -3.3937101910828
Profit per unit ($) 19.9733333333333 32.442 -3.41
Net Profit ($) 149800 405525 -13640

Group Members Roll Number

Chandan Kumar 2111073
Niharika 2111194
Raksha R. 2111227
Rohini Yadav 2111235
Saket 2111339
Shantanu Sharma 2111261
Sujana Ganga 2111092
Varsha Vijayanand Sirla 2111313
 Exhibit 3
Valves
Number of Units 7500
No. of Runs 1
Component Cost (Per Unit $) 16
Direct Labour Cost (Per Unit $) 4
Overhead as a percentage of Direct labour 17.56

Standard unit Cost 37.56

Overheads
20000 Receiving
200000 Material Handling
100000 Engineering
60000 Packaging and Shipping
30000 Maintenance
270000 Matchine Depriciation
Set-up Labour
Total Overheads

Total Run Labour 9725 hours x $16

Overhead rate 4.38745501285347
Selling Price per Unit ($) 57.78
Profit per unit ($) 20.22
Net Profit ($) 151650
541685

Exhibit 3 vs Exhibit 5:
1. Cost of valves are higher in this method compared to calculations
made as per exhibit 5. It is the other way round for Valves and Flow Controller.
2. Cost allocation in exhibit 5 is on the basis of percentage of transactions.
Whereas in exhibit 3, cost allocation of overhead for different product is calculated as a percentage o
cost.This causes the difference
in costs for the products.
xhibit 3 Exhibit 4
Pumps Flow Controllers
12500 4000 Number of units
5 10 No. of Runs
20 22
8 6.4
35.12 28.1 Material
Material Overhead
63.12 56.5 Set-Up Labour
Direct Labour
20000 Other Overheads
200000
100000 Total Cost per Unit ($)
60000
30000
270000 Exhibit 4 vs Exhibit 5:
1. Cost of valves and pumps are higher in this method comp
2688 made as per exhibit 5. It is the other way round for pumps.
682688 2. Cost allocation in exhibit 5 is on the basis of percentage o
Whereas in exhibit 4, cost allocation for different componen
been separately and no one rule has been followed. This cau
urs x $16 155600 in costs for the products.

81.26 97.07
18.14 40.57
226750 162280 540680

tions
Flow Controller.
ansactions.
product is calculated as a percentage of direct
 Exhibit 4 Strategic Impl
Valves Pumps Flow controllers
1. Price of flow controllers is $ 97.07. Calculations usi
7500 12500 4000
5 shows that cost per product is $ 100. The company
1 5 10 competition is less and they can increase the selling
that the company increases price per product to $ 13
profit margins of 35%. The firm should do so in a st
2. The profitability of valves is 52.83%. Profitability of
16 20 22 exceed the planned margins substantially. If competi
price of these products, the company should not shy
7.68 9.6 10.56
enough leg-room for the same.
0.02 0.05 0.48
4 8 6.4
21.3 21.3 8.52

49 58.95 47.96

hibit 5:
and pumps are higher in this method compared to calculations
bit 5. It is the other way round for pumps.
n in exhibit 5 is on the basis of percentage of transactions.
bit 4, cost allocation for different components of overheads has
nd no one rule has been followed. This causes the difference
roducts.
 Strategic Implications Income Difference
is $ 97.07. Calculations using data from exhibit
oduct is $ 100. The company has stated that
hey can increase the selling price. We recommend 1. Net income in traditional method: $540680
ses price per product to $ 135. This will ensure
The firm should do so in a staggered manner. 2. Net income in new method: $541685
es is 52.83%. Profitability of pumps is 66.45%. Both
gins substantially. If competitors decrease the
he company should not shy from doing the same. It has
same.
Difference

l method: $540680

od: $541685