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CLASSIC PEN COMPANY

SUMMARY BACKGROUND
Produced 2 Pens- Blue & Black.
Started Producing Red and Purple Pens As Well.
The Profits Started to Decrease With the
Introduction of 4 Colors.
All pens produced in one factory.
Ink is filled in the pens after the colors are mixed.
This makes machinery to be cleaned during
transition from one color to another.
Currently applies overhead on the basis of direct
labor cost.

Income Statement
Blue

Black

Red

Purple

Total

Sales

75.000

60.000

13.950

1.650

150.600

Direct Materials

25.000

20.000

4.680

550

50.230

Direct Labor

10.000

8.000

1.800

200

20.000

Manufacturing Overhead

30.000

24.000

5.400

600

60.000

Total Manufacturing Costs

65.000

52.000

11.880

1.350

130.230

Gross Margin

10.000

8.000

2.070

300

20.370

Gross Margin %

13,33%

13,33%

14,84%

18,18%

Unit Product Cost

1,30

1,30

1,32

1,35

Production in Units

50.000

40.000

9.000

1.000

Applied OH %300 of direct labor cost

13,53%

Activities and Activity Rates


Activity
Measure
Production Planning

# of Process

Color Transition

Prep Time

Bookkeeping

# of products

Information Center

# of Process

Machinery, Energy and Maintenance

Machine Hours

Invoicing and Shipping

# of products

First Stage Allocation


Activity

Overhead

Measure

Consumption

Production Planning

# of Process

30,00%

Color Transition

Prep Time

24,00%

Bookkeeping

# of products

Information Center

# of Process

13,33%

Machinery, Energy and Maintenance

Machine Hours

23,33%

Invoicing and Shipping

# of products

3,33%

6,00%

Activity

Total

Measure

Activity

Production Planning

# of Process

150

Color Transition

Prep Time

526

Bookkeeping

# of products

Information Center

# of Process

Machinery, Energy and Maintenance

Machine Hours

Invoicing and Shipping

# of products
Blue

Production in Units
Machine Hours Required/unit
# of Process
Prep Time/unit

Black

50.000

40.000

100.000
150
10.000
100.000

Red

Purple

9.000

1.000

0,1

0,1

0,1

0,1

50

50

38

12

200

50

228

48

First Stage Allocation


Activity
Rates

Overhead
Consumption

Overhead
Costs

Production Planning

# of Process

30,00%

18.000

Color Transition

Prep Time

24,00%

14.400

Bookkeeping

# of products

6,00%

3.600

Information Center

# of Process

13,33%

8.000

Machinery, Energy and Maintenance

Machine Hours

23,33%

14.000

Invoicing and Shipping

# of products

3,33%

2.000

Total

60.000

Activity Rates
Activity

Total

Measure

Activity

Production Planning

# of Process

150

Color Transition

Prep Time

526

Bookkeeping

# of products

Information Center

# of Process

Machinery, Energy and Maintenance

Machine Hours

Invoicing and Shipping

# of products

100.000
150
10.000
100.000

Activity Rates
Activity

Total

Overhead

Activity

Measure

Activity

Costs

Rates

Production Planning

# of Process

150

18.000

Color Transition

Prep Time

526

14.400

Bookkeeping

# of products

100.000

3.600

Information Center

# of Process

150

8.000

53,33

Machinery, Energy and Maintenance

Machine Hours

10.000

14.000

1,40

Invoicing and Shipping

# of products

100.000

2.000

Total

60.000

120
27,38
0,04

0,02

Second Stage Allocation


Blue
Production in Units
Machine Hours Required/unit
# of Process
Prep Time/unit

Black

50.000

40.000

Red

Purple

9.000

1.000

0,1

0,1

0,1

0,1

50

50

38

12

200

50

228

48

Second Stage Allocation


Blue

Black

Production Planning

6.000,00

6.000,00

4.560,00

1.440,00

Color Transition

5.475,29

1.368,82

6.241,83

1.314,07

Bookkeeping

1.800,00

1.440,00

324,00

36,00

Information Center

2.666,67

2.666,67

2.026,67

640,00

Machinery, Energy and Maintenance

7.000,00

5.600,00

1.260,00

140,00

Invoicing and Shipping

1.000,00

800,00

180,00

20,00

23.941,95

17.875,49

14.592,49

3.590,07

Total

Blue
Production in Units

Black

50.000

Machine Hours Required/unit


# of Process
Prep Time/unit

40.000

Purple

Red

Purple

9.000

1.000

0,1

0,1

0,1

0,1

50

50

38

12

200

50

228

48

Activity

Activity

Measure

Rates

Production Planning

# of Process

Color Transition

Prep Time

Bookkeeping

# of products

Information Center

# of Process

Machinery, Energy and Maintenance

Machine Hours

Invoicing and Shipping

# of products

Total

Red

120
27,38
0,04
53,33
1,40
0,02

Product Costing
Blue

Black

Red

Purple

Total

Sales

75.000

60.000

13.950

1.650

150.600

Direct Materials

25.000

20.000

4.680

550

50.230

Direct Labor

10.000

8.000

1.800

200

20.000

Production Planning

6.000,00

6.000,00

4.560,00

1.440,00

18.000

Color Transition

5.475,29

1.368,82

6.241,83

1.314,07

14.400

Bookkeeping

1.800,00

1.440,00

324,00

36,00

3.600

Information Center

2.666,67

2.666,67

2.026,67

640,00

8.000

Machinery, Energy and Maintenance

7.000,00

5.600,00

1.260,00

140,00

14.000

Invoicing and Shipping

1.000,00

800,00

180,00

20,00

2.000

58.941,95

45.875,49

21.072,49

4.340,07

130.230,00

16.058,05

14.124,51

Overhead

Total Manufacturing Costs


Gross Margin
Gross Margin %

21%

Unit Product Cost

1,18

24%
1,15

(7.122,49) (2.690,07)
-51%

-163%

2,34

4,34

20.370,00
14%

vs Traditional Costing
Gross Margin %
Unit Product Cost

13%
1,30

13%
1,30

15%
1,32

18%
1,35

14%