Individual Project #2 Classic Pen Company Professor Vanover Management 30B 03/12/2013 Assignment #1: Assignment #2: The Production Preparation‚ Records Maintenance‚ Computer System Operation‚ and Records Keeping in Computer were the four new activities Dempsey likely have identified‚ which Dempsey interviewed the department head in charge of indirect labor and the manager of the Data Center and the Management Information System departments for information. Assignment #3:
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Classic Pen 1.) Create an ABC diagram of Classic Pen Company (be sure to include activities‚ cost drivers‚ and cost objects) AND 2.) Determine the activity rates for each of the cost drivers Fringe Benefits $800 Fringe Benefits $4‚000 Fringe Benefits $3‚200 Indirect Labor $2‚000 Indirect Labor $10‚000 Energy‚ Maintenance‚ Machinery $14‚000 Indirect Labor $8‚000 Computer System $2‚000 Computer System $8‚000 10‚000 Machine hrs. 4 Part Admin 150 Production Runs
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Classic Pen Case 1. Calculate the revised product costs for the four pens‚ using the spreadsheet template provided and the information collected by Dempsey. | | Blue | Black | Red | Purple | | Total | | | | | | | | | Sales | | $75‚000 | $60‚000 | $13‚950 | $1‚650 | | $150‚600 | | | | | | | | | Material costs | | $25‚000 | $20‚000 | $4‚680 | $550 | | $50‚230 | | | | | | | | | Direct Labor (DL) | | $10‚000 | $8‚000 | $1‚800 | $200
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Classic Pen Company: Developing an ABC Model 1. Calculate the revised product costs for the four pens‚ using the spreadsheet template provided and the information collected by Dempsey. Blue Sales Material costs Direct Labor (DL) 40% fringe on DL Machine time expense
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Question 1: Calculate the revised product cost for the four pens‚ based on the activity information collected by Dempsey: Activities Indirect labour Computer system Scheduling / production runs 50% 80% Physical changeover 40% Record maintenance 10% 20% Activity cost pool Activity measures Scheduling / production runs No of runs Physical changeover No of hours Record maintenance No of hours Scheduling
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ANALYSIS Background Information: The Classic Pen Company was a low-cost producer of traditional BLUE and BLACK pens with profit margins over 20% of sales. They then introduced RED pens at a 3% premium‚ and a year later they introduced PURPLE pens due to the 10% premium that they could command. However‚ they were disappointed with the most recent year; RED and PURPLE pens were not bringing in expected sales (still considering their higher profit margin)‚ and BLUE and BLACK pens profitability
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CLASSIC PEN COMPANY: DEVELOPING AN ABC MODEL REVISED PRODUCT COSTS FOR THE FOUR PENS‚ BASED ON THE ACTIVITY INFORMATION COLLECTED BY DEMPSEY Cost centres under ABC Indirect labour=$ 20‚000 40% *20‚000=8‚000 Total indirect labour=$ 28‚000 Computer expenses=$ 10‚000 Machine expenses= $ 8‚000+ $ 4‚000+ $ 2‚000=$ 14‚000 Cost estimates/allocation under ABC Activity Indirect labour Computer expenses Machine expenses Total Activity rate Handle production runs 50% 14‚000 80% 8‚000
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ACC 341 Classic Pen Case Assignment You should hand in one page of analysis and two sets of supporting calculation. The first supporting calculation is an ABC system for Classic Pen‚ constructed by filling in the blanks in the following table. First allocate the total expenses in each row to the various activities‚ based on information in the case. Then choose a cost driver and calculate the rate per unit of the cost driver. Activities Schedule & Handle Production Runs Set up Machines
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Classic Pen Activity-Based Costing Analysis Executive Summary By using the volume based costing system‚ Classic Pen appears to be profitable and making a good return on sales of blue‚ black‚ red‚ and purple pens. The percentage of return on sales of all four colors of pens seems to be no less than 17%. Once the traditional income statement is analyzed‚ the indirect costs are lumped together in the general cost pool titled “overhead”; these costs should be broken down into specific cost pools.
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THE CLASSIC PEN COMPANY Activity Based Costing case study Topics • About The Classic Pen Company • Issues • ABC introduction at TCPC • Managerial implications • Recommendations School of Business and Economics - Opleiding tot Registercontroller (EMFC) About • Classic Pen Company is a low cost provider of traditional BLUE and BLACK pens • High profit margins (over 20% of sales) • Cost allocated on basis of traditional cost price method • Introduction of new colors (RED and PURPLE
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