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    TJB Case

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    supeach.k
    1. The document calculates product costs for valves, pumps, and flow controllers using traditional costing and activity-based costing. It allocates manufacturing overhead and other fixed costs across production items. 2. Under activity-based costing, the costs per unit are higher for flow controllers and the contribution margin is negative, indicating this product may not be profitable. 3. The calculations show how traditional costing may misrepresent actual costs by not allocating overhead accurately based on resource consumption. Activity-based costing provides a more granular view of costs and potential profitability.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd

    TJB Case

    Uploaded by

    supeach.k
    6 views14 pages
    1. The document calculates product costs for valves, pumps, and flow controllers using traditional costing and activity-based costing. It allocates manufacturing overhead and other fixed costs across production items. 2. Under activity-based costing, the costs per unit are higher for flow controllers and the contribution margin is negative, indicating this product may not be profitable. 3. The calculations show how traditional costing may misrepresent actual costs by not allocating overhead accurately based on resource consumption. Activity-based costing provides a more granular view of costs and potential profitability.

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    TJB-Case

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    1. The document calculates product costs for valves, pumps, and flow controllers using traditional costing and activity-based costing. It allocates manufacturing overhead and other fixed costs across production items. 2. Under activity-based costing, the costs per unit are higher for flow controllers and the contribution margin is negative, indicating this product may not be profitable. 3. The calculations show how traditional costing may misrepresent actual costs by not allocating overhead accurately based on resource consumption. Activity-based costing provides a more granular view of costs and potential profitability.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    6 views14 pages

    TJB Case

    Uploaded by

    supeach.k
    1. The document calculates product costs for valves, pumps, and flow controllers using traditional costing and activity-based costing. It allocates manufacturing overhead and other fixed costs across production items. 2. Under activity-based costing, the costs per unit are higher for flow controllers and the contribution margin is negative, indicating this product may not be profitable. 3. The calculations show how traditional costing may misrepresent actual costs by not allocating overhead accurately based on resource consumption. Activity-based costing provides a more granular view of costs and potential profitability.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 14

    1.

    Calcualte the product cost per unit

    Valves Pumps Flow controller


    Direct Material 16 20 22
    Direct Labor 4 8 6
    Manufacturing overhead 17.55 35.10 28.08
    Cost per unit $ 37.55 $ 63.10 $ 56.48

    Labor = 16 per hour

    Manufacturing overhead rate= 4.39 439%

    Receiving 20,000
    Materials Handling 200,000
    Engineering 100,000
    Packing and shipping 60,000
    Maintance 30,000
    Machine Depreciation 270,000
    Set-up labor 2,688
    Total 682,688

    Run-labor = 155,600
    2. Calculate the contribution margin

    Contribution margin = Sales - variable cost

    Valves Pumps Flow Controllers


    Selling price 57.78 81.26 97.07
    Variable cost 16 20 22
    Contribution margin $ 41.78 $ 61.26 $ 75.07
    3. Calculate the revised product cost mentioned by Mary Ford on Page 3

    Valves Pumps Flow Controller


    Materials 16 20 22
    Material related overhead 7.69 9.61 10.57
    Set up labor 0.02 0.05 0.48
    Direct labor 4 8 6.4
    Other overhead 21.30 21.30 8.52
    Revised Stand cost 49.00 58.95 47.97

    Material related overhead


    Receiving 20000
    Material Handling 200000
    Total 220000

    Material cost= 458000

    Material related overhead rate= 0.48

    Other overhead bases on Machine Hour


    Machine depreciation 270000
    Engineering 100000
    Packing and shipping 60000
    Maintenance 30000
    Total 460000
    Machine hour= 10800
    Overhead Allocated rate= 42.59
    Valves Pumps Flow controller
    Set up per pdocution run 8 8 12
    Monthly production 7500 12500 4000
    Run 1 5 10
    Set up labor per unit 937.5 312.5 33.33
    low controller
    4. Calculate Using ABC

    Valves Pumps Flow Controllers


    Per Unit Total 7,500 Per Unit Total 12,500 Per Unit Total 4,000
    Material $16.00 $120,000. 20 250000 22 88000
    Labor 4 30,000.00 8 100,000.00 6.4 25,600.00
    Overhead:
    Set-up 0.02 128 0.05 625 0.48 1,920.00
    Receiving 0.08 600 0.31 3,875.00 3.9 15,503.88
    Mat’l. Handling 0.8 6,000.00 3.04 38,000.00 39 156,000.00
    Pack & Ship 0.32 2,400.00 1.10 13,800.00 10.95 43,800.00
    Engineering 2.66 20,000.00 2.4 30,000.00 12.5 50,000.00
    Maintenance 1.4 10,500.00 1.39 17,400.00 0.53 2,100.00
    Mach. Depr. 12.5 93,750.00 12.5 156,250.00 5 20,000.00
    Total Overhead $17.78 $133,378. $20.79 $259,890. $72.36 $289,420.
    Total Cost $37.78 $283,378. $48.79 $609,890. $100.76 $403,020.

    Checking overhead 17.78 133,378.00 20.80 259,950.00 72.33 289,323.88


    37.78 283,378.00 48.79 609890 100.76 403020
    Sample of calculation

    * Receiving for Valve => total transaction is 129 times , Valve uses 4 times so ((4/129) *20000)/7500 = 0.08
    Mat handling for Pump = (200,000 *60%*19%)/12500 + (200,000*40%*19%)/12500 => info from Exhibit 3

    Receiving for pump=(25/129)*20000/12500= 0.3100775194


    Receiving for flow controller = (100/129)*20000/4000= 3.8759689922

    Mat handling for pump= (200000*60%*19%)/12500+(200000*40%*19%)/12500= 3.04


    Mat handling for flow controller= (200000*60%*78%)/4000+(200000*40%*19%)/4000= 39

    Pack&Ship
    Valves=(60000*4%)/7500= 0.32
    Pumps = (60,000*23%)/12500= 1.10
    Flow controller = (60000*73%)/4000= 10.95

    Engineering
    Valves=(100000*20%)/7500= 2.67
    Pumps = (100000*30%)/12500 2.4
    flow controller= (100000*50%)/4000= 12.5

    Maintance
    Valves = (30,000*35%)/7500= 1.4
    Pumps= (30000*58%)/12500= 1.39
    Flow controller = (30000*7%)/4000= 0.53
    Machince dep.
    Valves=(0.5*7500*270000)/10800/7500= 12.5
    Pumps=(0.5*12500*270000)/10800/12500= 12.5
    Flow controller= (0.2*4000*270000)/10800/4000= 5
    Total Month
    24,000 units
    458000
    155,600.00

    2,673.00
    19,978.88
    200,000.00
    60,000.00
    100,000.00
    30,000.00
    270,000.00
    $682,688.00
    $1,296,288.

    1296288.00
    Vavles Pumps Flow controller
    Actual selling price 57.78 81.26 97.07
    Stand cost 37.56 63.12 56.50
    Gross margin 20.22 18.14 40.57
    Gross margin % 35% 22% 42%

    Revised cost 49.00 58.95 47.96


    gross margin 8.78 22.31 49.11
    gross margin % 15% 27% 51%

    ABC cost 37.78 48.79 100.76


    Gross margin 20.00 32.47 (3.69)
    Gross margin % 35% 40% -4%

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