8/3/2019 ABC-Classic Pen (2)

http://slidepdf.com/reader/full/abc-classic-pen-2 1/11

CLASSIC PEN COMPANY

8/3/2019 ABC-Classic Pen (2)

http://slidepdf.com/reader/full/abc-classic-pen-2 2/11

SUMMARY BACKGROUNDProduced 2 Pens- Blue & Black.

Started Producing Red and Purple Pens As Well.

The Profits Started to Decrease With theIntroduction 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 duringtransition from one color to another.

Currently applies overhead on the basis of directlabor cost.

8/3/2019 ABC-Classic Pen (2)

http://slidepdf.com/reader/full/abc-classic-pen-2 3/11

Income StatementBlue 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% 13,53%

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

8/3/2019 ABC-Classic Pen (2)

http://slidepdf.com/reader/full/abc-classic-pen-2 4/11

 Activities and Activity Rates

Activity

Measure

Production Planning # of Process

Color Transition Prep TimeBookkeeping # of products

Information Center # of Process

Machinery, Energy and Maintenance Machine Hours

Invoicing and Shipping # of products

8/3/2019 ABC-Classic Pen (2)

http://slidepdf.com/reader/full/abc-classic-pen-2 5/11

First Stage Allocation

Activity Overhead

Measure 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

Production in Units 50.000 40.000 9.000 1.000

Machine Hours Required/unit 0,1 0,1 0,1 0,1

 # of Process 50 50 38 12Prep Time/unit 200 50 228 48

8/3/2019 ABC-Classic Pen (2)

http://slidepdf.com/reader/full/abc-classic-pen-2 6/11

First Stage Allocation

Activity Overhead Overhead

Rates Consumption 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 

8/3/2019 ABC-Classic Pen (2)

http://slidepdf.com/reader/full/abc-classic-pen-2 7/11

 Activity Rates

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 

8/3/2019 ABC-Classic Pen (2)

http://slidepdf.com/reader/full/abc-classic-pen-2 8/11

 Activity Rates

Activity Total Overhead Activity

Measure Activity Costs Rates

Production Planning # of Process 150 18.000 120

Color Transition Prep Time 526 14.400 27,38 

Bookkeeping # of products 100.000 3.600 0,04

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 0,02

Total 60.000 

8/3/2019 ABC-Classic Pen (2)

http://slidepdf.com/reader/full/abc-classic-pen-2 9/11

Second Stage Allocation

Blue Black Red Purple

Production in Units 50.000 40.000 9.000 1.000

Machine Hours Required/unit 0,1 0,1 0,1 0,1

 # of Process 50 50 38 12

Prep Time/unit 200 50 228 48

8/3/2019 ABC-Classic Pen (2)

http://slidepdf.com/reader/full/abc-classic-pen-2 10/11

Second Stage Allocation

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

Blue Black Red Purple

Production in Units 50.000 40.000 9.000 1.000 

Machine Hours Required/uni 0,1 0,1 0,1 0,1

 # of Process 50 50 38 12

Prep Time/unit 200 50 228 48

Blue Black Red Purple

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 

Total 23.941,95 17.875,49 14.592,49 3.590,07 

8/3/2019 ABC-Classic Pen (2)

http://slidepdf.com/reader/full/abc-classic-pen-2 11/11

Product CostingBlue 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