Mariela Tinajero
MBA 6210
Tues 5:30-8:30
Destin Brass Products Co.
1. According to my calculations below the estimates for the products are as follows: $37.71 for the valves, $48.79 for the pumps,
and $100.76 for the flow controllers.
Monthly Overhead Cost Activity
Analysis
Valves
Machine Depreciation
Machine Depreciation (per hr
of use)
Receiving and Materials Handling
Receiving
Material handling
Packing and Shipping
Packing and Shipping
Engineering
Engineering
Maintance
Maintance
Maintance (hrs)
Pumps
Flow
Controllers
$25
$25
$25
3%
3%
19%
19%
78%
78%
3%
23%
73%
20%
30%
50%
35%
3750
58%
6250
7%
800
Costs
Machine Depreciation
Machine Depreciation
Receiving and Materials Handling
Receiving
Material handling
Packing and Shipping
Packing and Shipping
Engineering
Engineering
Maintance
Maintance
270000
20000
200000
60000
100000
30000
Unit Costs
Monthly Production (units)
Material
Direct Labor
Subtotal
Overheads:
Set-up Labor
Set-up Labor
Machine Depreciation
Machine
Depreciation
(3750*25)/7500=
Receiving and Materials Handling
Receiving
(20000*0.03)/7500=
(200000*0.03)/7500
Material handling
=
Packing and Shipping
Packing and
Shipping
(60000*0.03)/7500=
Engineering
Engineering
(100000*0.2)/7500=
Maintance
Maintance
(30000*0.35)/7500=
Total Cost per Unit:
Valves
7500
16
4
20
Pumps
12500
20
8
28
Flow
Controllers
4000
22
6.4
28.4
0.02
0.05
0.48
12.50 (6250*25)/12500=
12.50 (800*25)/4000=
5.00
0.08 (20000*0.19)/12500=
(200000*0.19)/12500
0.80 =
0.30 (20000*0.78)/4000=
(200000*0.78)/4000
3.04 =
39.00
0.24 (60000*0.23)/12500=
1.10 (60000*0.73)/4000=
10.95
2.67 (100000*0.3)/12500=
2.40 (100000*0.5)/4000=
12.50
1.40 (30000*0.58)/12500=
1.39 (30000*0.07)/4000=
0.53
37.71
48.79
3.90
100.76
2. The main factor for such different results is that the total overheads for the items are very different were as the material and
direct labor don’t change much.
Unit Costs
Monthly Production (units)
Material
Direct Labor
Subtotal
Overheads:
Set-up Labor
Set-up Labor
Machine Depreciation
Machine Depreciation
Receiving and Materials
Handling
Receiving
Material handling
Packing and Shipping
Packing and Shipping
Engineering
Engineering
Maintance
Maintance
Total Overheads
Total Cost per Unit:
Valves
Pumps
Flow Controllers
Standard Revised ABC
Standard Revised ABC
Standard Revised ABC
7500
7500
7500
12500
12500
12500
4000
4000
4000
16
16
16
20
20
20
22
22
22
4
4
4
8
8
8
6.4
6.4
6.4
20
20
20
28
28
28
28.4
28.4
28.4
Uses
One
Pool
Uses
Pools
Mt OH
Overhead
7.68+
SU
Labor
0.02+
Other
OH
21.3+
Rate
is
439% of
Direct
Labor
$
0.02 Uses
One
12.5 Pool
Overhead
0.08 Rate
0.8 is
439% of
0.24 Direct
Labor
2.666667 $
17.56
29.00
1.4
17.71
37.56
20.00
37.71
35.12
63.12
Uses
Pools
Mt OH
9.60+
SU
Labor
0.05+
Other
OH
21.3+
0.05 Uses
One
12.5 Pool
Overhead
0.304 Rate
3.04 is
439% of
1.104 Direct
Labor
2.4 $
Uses
Pools
Mt OH
10.56+
SU
Labor
0.48+
Other
OH
8.52+
0.48
5
3.9
39
10.95
12.5
30.95
1.392
20.79
28.12
19.56
0.525
72.36
28.00
48.79
56.52
28.40
100.76
3. The valve prices don’t need to be changed since you still make the 35% gross margin. Pumps make a 40% gross margin
therefore if needed the pump prices can be lowered. However, the flow controllers are making -4% gross margin so the prices
need to be increased. To make 35% gross margin on flow controllers you will need to price them at 100.76/(1-0.35) = $155.02.
Standard Unit Cost
Planned Gross
Margin
Target Selling Price
Actual Selling Price
Actual Gross
Margin
Valves
Pumps
Flow Controllers
Standard Revised ABC
Standard Revised ABC Standard Revised ABC
37.56
20 37.70667
63.12
28 48.79
56.52
28.4 100.755
35%
50.71
57.78
35%
27.00
57.78
35%
50.90
57.78
35%
85.21
81.26
35%
37.80
81.26
35%
65.87
81.26
35%
76.30
97.07
35%
38.34
97.07
35%
136.02
97.07
35%
65%
35%
22%
66%
40%
42%
71%
-4%
4. There shouldn’t be any difference in net income. Total expenses do not change the only thing that changes is how the total
expenses are allocated amongst different products. The only thing that will change is the profit margin as the target selling
price is changed.