Indian Institute of Management, Ranchi

MBA Section - D, 2021-23

Managerial Accounting

Destin Brass Products Co. Case Study Solution

Group 2
Shreyas Bhoite (M404-21)
Arindam Mandal (M335-21)
Aryanika (M337-21)
Moinak Ghosh (M369-21)

Submitted to 
Professor. Kamran Quddus
13 November 2021
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 Case Summary
Destin Brass Products Co. was founded and has since expanded to include valves (24 percent of revenue),
pumps (55 percent of income), and flow controllers (21 percent of the company revenue). This article will
show the recommended methods for corporate executives attempting to assess competitive market trends
for the products mentioned above and develop new strategies to address these trends. As Ambler (2008)
points out, finance and accounting are the foundations and necessities for any form of company's
immediate and long-term survival.
Because of the market's great competitiveness, firms must have a thorough understanding of costs and
earnings to make more informed decisions.
In the case of Destin Brass, the company attempted to establish a high brand name for producing valves.
Still, as part of a business expansion, the company added two new product lines: pumps and flow
controllers, keeping in mind the similarities of productions and the availability of production capacity.
Because of the exceptional quality of the valves produced, Destin Brass does not have a notable opponent
in the valves business. Still, there is fierce competition in the pump and flow controllers’ market. This
article will depict a period in the company's history when there was fierce competition for pump pricing,
and increasing the costs of flow controllers did not affect the market. To compete, the management needs
to reassess its financial plan.

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 Product Cost Estimation using cost activity analysis

Comparing the estimated costs to the traditional and revised costs.

What causes the different product costing methods to produce such
different results?
The traditional method is different from activity-based costing, and it causes the pumps to be costlier and
flow controllers to be less expensive. Because the conventional method allocates overheads as a
percentage of direct labor, it does not account that most of the direct labor goes towards flow controllers.
Therefore, Flow controllers appear to be cheaper as overheads of their productions get applied to the other
product lines.
Under the revised method, valves & pumps appear more expensive, but flow controllers are way cheaper
than activity analysis. Because the modified form absorbs overhead at an absorption rate based on
material-related overhead. Flow controllers do not use much material compared to pumps & valves,
which is not reflected in the revised standard unit costs. Therefore, flow controllers appear to be much
less expensive as overheads associated with labor going into flow controllers get applied to valves &
pumps.

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Strategic implications and recommendations to the managers at
Destin Brass Products Co.
It is recommended that Destin brass should reduce the production runs of flow controllers, which would
drastically reduce the standard unit cost. Further, Destin should consider reducing the number of
transactions for receiving and handling materials from 100, which would undoubtedly diminish their costs
per unit.
Additionally, Destin Brass makes 22 shipments of flow controllers to their distributors and customers. If
feasible, reducing the number of shipments would reduce overheads related to shipping significantly, of
which currently 73% are being allocated to flow controllers.

Net income is reported under different costing methods.

Assuming that quantities produced, sold, activities & costs all remain the same in the next month, the net
income reported should not differ under the activity-based costing system compared to the traditional
approach because net income translates to Revenue less all costs, which are assumed to be similar. Hence
there will not be any difference in Total Revenue & expenses, and net income. The new system will only
provide a better mechanism for allocating the costs across various product lines. The margin on pumps
will improve significantly to 40%. However, there will be a 4% loss in the flow controllers, but that could
be solved by making specific changes in the process as suggested above.

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