Classic Pen Solution

Allocation of Amount $Cost Hierarchy Drivers or Allocation Blue Black Red Purple Total
Indirect Cost
Sales Pool 75,000 60,000 13,950 1,650 1,50,600
Units 50,000 40,000 9,000 1,000 1,00,000
Indirect Costs
1 Indirect Labor & 1/2 Fringe $ 28000
Scheduling and Handling Produciton Runs 50% 14000 Batch Level Production Runs 4,667 4,667 3,547 1,120 14,000
Physical Change Over 40% 11200 Batch Level Set up Hrs 4,259 1,065 4,855 1,022 11,200
Maintaining Records & inventory 10% 2800 Product Level # of products 700 700 700 700 2,800

2 Computer Systems $ 10000

Production Run Activity 80% 8000 Batch Level Production Runs 2,667 2,667 2,027 640 8,000
Record Keeping of 4 pruducts 20% 2000 Product Level # of products 500 500 500 500 2,000

3 Machinery Dep, Maintainancee & energy 100%

$ 14000 Unit level Production Sales Volume 7,000 5,600 1,260 140 14,000
Machinery Time Hrs 10000 Machine hrs/unit
Per Hour Usage in Rs 1.4
TOTAL 19,792 15,198 12,888 4,122 52,000
Indirect Cost/ Unit 0.40 0.38 1.43 4.12 0.52

Direct Cost
4 Direct Labou + 1/2 FBT (See workings) 100% 28000 Unit level Production Sales Voulme 14,000 11,200 2,520 280 28,000

5 Material Cost Unit level Production sales volume 25,000 20,000 4,680 550 50,230
TOTAL 39,000 31,200 7,200 830 78,230
Direct cost/Unit 0.78 0.78 0.8 0.83 0.7823

TOTAL COST (DIRECT + OH) 58,792 46,398 20,088 4,952 1,30,230

Total Cost/ Unit 1.18 1.16 2.23 4.95 1.30
Profit-Operating Income 16,208 13,602 (6,138) (3,302) 20,370
Return of Sales 22% 23% -44% -200% 14%

Traditional Income Statement

Blue Black Red Purple Total
Sales 75000 60000 13950 1650 150600
Material Cost 25,000 20,000 4,680 550 50,230
Direct Labor 10,000 8,000 1,800 200 20,000
Overhaead @ 300% 30,000 24,000 5,400 600 60,000
Total Manufacturing Cost 65,000 52,000 11,880 1,350 1,30,230
Total Cost per Unit 1.30 1.30 1.32 1.35 1.30
Total Operating Income 10,000 8,000 2,070 300 20,370
Return on Sales 13.33% 13.33% 14.84% 18.18% 13.53%
Working
a Fring Benefits $ 16000 Facility Sustain level
Indirect Labour 50% 8000 As per Indirect Labor
Direct Labour 50% 8000 As per Direct Labor

b Direct Labour $ 20000 Hrs/unit

c Indirect Labour $ 20000

Direct Cost and Activity Cost Drivers

Blue Black Red Purple Total

Production Sales Volume 50000 40000 9000 1000 100000

Unit Selling Price 1.5 1.5 1.55 1.65 1.51
Materials- unit cost 0.5 0.5 0.52 0.55 0.50
Direct Labour hrs/unit 0.02 0.02 0.02 0.02 2000
Machine Hours/Unit 0.1 0.1 0.1 0.1 10000
Production Runs 50 50 38 12 150
Setup Time/ Run 4 1 6 4 0
Total Setup time (Hrs) 200 50 228 48 526
Parts Administration 1 1 1 1 4