Classic Pen Company

 Classic Coop Company Article

THE CLASSIC DOG PEN COMPANY

Activity Based Being case study

Issues

• About The Classic Pen Company

• Issues

• ABC launch at TCPC

• Bureaucratic implications

• Recommendations

University of Organization and Economics - Opleiding tot Registercontroller (EMFC)

About

• Classic Pen Organization is a low cost provider of

traditional GREEN and BLACK pens

• High income (over twenty percent of sales)

• Expense allocated upon basis of classic cost price

approach

• Launch of new shades (RED and PURPLE can

be sold at 3% premium)

• Anticipations: higher income

• Realization: Lower earnings

School of Business and Economics -- Opleiding tanto Registercontroller (EMFC)

Issues

• By expanding the variety, with high grade

models, larger results in sales were realized, yet

overall earnings was weak

• Allocation of 300% overhead by way of direct work �

hard to maintain

EXHIBIT 1

Classic Income Assertion

Sales

Materials costs

Direct labor

Over head @ 300%

Total working income

Go back on revenue

BLUE

BLACK

RED

MAGENTA

TOTAL

money 75. 1000 $ sixty. 000 dollar 13. 950 $ 1 . 650 one hundred fifty dollars. 600

twenty-five. 000

20. 000

some. 680

550

50. 230

10. 1000

8. 1000

1 . 800

200

20. 000

40. 000

twenty four. 000

5. 400

six hundred

60. 000

$ 15. 000 money 8. 500 $ installment payments on your 070 dollar

300 money 20. 370

13, 3%

13, 3%

14, 8%

18, 2%

13, five per cent

School of Business and Economics - Opleiding tot Registercontroller (EMFC)

Activity based costing research

EXPENSE CATEGORY

Overhead

DEMONSTRATE 2

Roundabout labor

Perimeter benefits

Computer systems

Machinery

Repair

Energy

Total

EXPENSE

20. 000

16. 000

15. 000

almost eight. 000

four. 000

installment payments on your 000

70. 000

Immediate Costs and Activity Cost Drivers

Creation sales

quantities (no. of units)

Product selling price

Material/unit cost

Immediate labor hr/unit

Machine hour/unit

No . of production runs

Setup time/run (hours)

Total setup period (hours)

Number of products

GREEN

BLACK

REDDISH

PURPLE TOTAL

50. 1000

40. 1000

9. 1000

1 . 500

100. 000

$1, 50

$0, 60

0, 02

0, 1

50

four

200

you

$1, 55

$0, 50

0, 02

0, 1

50

you

50

1

$1, fifty five

$0, 52

0, 02

0, you

38

six

228

one particular

$1, sixty-five

$0, fifty-five

0, 02

0, one particular

12

5

48

1

2 . 000

10. 500

150

School of Business and Economics - Opleiding tot Registercontroller (EMFC)

526

4

Allocations based on DASAR

School of Business and Economics - Opleiding tanto Registercontroller (EMFC)

Costs per unit

School of Organization and Economics - Opleiding tot Registercontroller (EMFC)

Bureaucratic implications

The revised expense clearly implies that black and green pens possess profit margin > 20% of revenue. Additionally , equally red and purple provides negative revenue margin. Therefore, the recommendation is that Traditional Pen Firm should maintain producing black and blue pencil and stop creating red, violet and other specialized colored pens.

To produce a fresh color, DASAR needs to spend money on huge over head in personal computers and equipment (fixed over head cost). Hence, it is not advisable to produce a fresh color unless of course the product sales will go beyond the breakeven point. University of Organization and Economics - Opleiding tot Registercontroller (EMFC)

Recommendation as a result of activity

based priced at

BLUE

DARK-COLORED

RED

PURPLE

School of Business and Economics -- Opleiding tot Registercontroller (EMFC)


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