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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
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
Measure
Overhead
Consumption
Production Planning # of Process 30,00%
Color Transition Prep Time 24,00%
Bookkeeping # of products 6,00%
Information Center # of Process 13,33%
Machinery, Energy and Maintenance Machine Hours 23,33%
Invoicing and Shipping # of products 3,33%
Activity Total
Measure Activity
Production Planning # of Process 150
Color Transition Prep Time 526
Bookkeeping # of products 100.000
Information Center # of Process 150
Machinery, Energy and Maintenance Machine Hours 10.000
Invoicing and Shipping # of products 100.000
Blue Black Red Purple
Activity Activity
Measure Rates
Production Planning # of Process 120
Color Transition Prep Time 27,38
Bookkeeping # of products 0,04
Information Center # of Process 53,33
Machinery, Energy and Maintenance Machine Hours 1,40
Invoicing and Shipping # of products 0,02
Total
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
Overhead
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
Total Manufacturing Costs 58.941,95 45.875,49 21.072,49 4.340,07 130.230,00
Gross Margin 16.058,05 14.124,51 (7.122,49) (2.690,07) 20.370,00
Gross Margin % 21% 24% -51% -163% 14%
Unit Product Cost 1,18 1,15 2,34 4,34
vs Traditional Costing
Gross Margin % 13% 13% 15% 18% 14%
Unit Product Cost 1,30 1,30 1,32 1,35