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Classic Pen

Company

• All indirect costs were aggregated at plant level and allocated to products based upon the direct labor cost • The overhead rate is 300% of direct labor cost .Case Background • Five years earlier Red pens were introduced at 3% premium • Recently Purple pens were introduced at 10% premium.

070  $300  $20.950  $1.84% 18.000  $60.000  $2.400  $600  $60.000  Overhead @300% $30.370  13.000  $8.230  Total operating income $10.000  Total operating cost $65.680  $550  $50.800  $200  $20.Current Financials Income statement       Blue Black Sales $75.000  $1.350  $130.33% 14.53% Return on sales Red   .000  Direct labour   Purple Total $13.000  $8.000  $5.600  $20.000  $4.880  $1.000  Material costs $25.18% 13.000  $11.230  $10.000  $24.650  $150.33% 13.000  $52.

By ABC Fringe Benefits Computer Expenses Support • Direct labour (50%) • Indirect labor (50%) • 50% : Production run • 40% : Setup costs • 10% : Parts Administration • 20% : Parts adminstration • 80% : Production run • is appropriated as produced quantity .

000 (Computer System) $10.000 (Indirect Labour) $4.Calculation Activities  Cost Explanation Production Run $22.200 $8.000 (Indirect Labour) $800 (Fringe) .000 (Fringe) Set up $11.000 $8.200 (Fringe) Parts Administration $4.000 (Computer System) $2.000 (Indirect Labour) $3.800 $2.

950 $1.7% -44.000 $5.138) ($3.370 21.200 Parts Administration $1.333 $7.000 Operating income $16.302) $20.855 $1.000 Direct labour fringe $4.608 $4.650 $150.1% 13.000 $13.Income Statement with ABC   Blue Black Red Purple Total Sales $75.000 $4.0% -200.398 $13.573 $1.022 $11.260 $140 $14.065 $4.000 $20.6% 22.000 $1.200 $1.259 $1.792 $18.200 $4.200 $1.602 ($6.200 $1.202 $60.000 Set up $4.760 $22.000 Production Run $7.000 Total Overhead $23.000 $8.600 $1.333 $5.000 $3.230 Direct labour $10.600 Material costs $25.5% Return on sales .200 $720 $80 $8.800 Support $7.208 $13.680 $550 $50.800 $200 $20.000 $60.

95 .17 $1.Cost Comparison   Blue Black Red Purple Original Cost/unit $1.15 $2.23 $4.30 $1.30 $1.35 ABC cost/unit $1.32 $1.

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