Destin Brass Products Co.
(Course Ebook, pp. 45-54)
Case Questions
1.*
Peggy Alford, the company’s controller, asserts that “All overhead allocation is
somewhat arbitrary” (p. 49). Discuss whether you agree with this assertion.
2.*
Under the company’s current product-costing system, overhead is allocated to products at
a rate of 439% of run labor costs. Discuss specific assumptions the company is making
about the relationship between overhead and run labor costs when it uses this overhead
rate and whether you think these assumptions are valid. Also, discuss likely reasons the
company is allocating overhead in this way.
3.*
In the last paragraph on p. 47, Alford discusses an alternative product-costing system
being considered by the company. Discuss whether you think she is describing a variable
costing system.
4.*
Discuss whether you think the alternative product-costing system captured in Exhibit 4
will produce better unit product costs than the company’s current product-costing system.
5.
Using data in Exhibit 5 and other data on manufacturing costs presented in the case,
calculate the standard unit product costs for valves, pumps, and flow controllers under the
proposed activity-based costing system.
6.
Compare the standard unit product costs you computed in 5 above with those presented in
Exhibit 3 and Exhibit 4. What causes the different product-costing methods to generate
such different unit product costs?
*
Formal written responses to these items will be collected at the beginning of class on
Thursday, September 10.