Vous êtes sur la page 1sur 1

Prashant Garg

Individual Assignment 2 (MAC Destin Brass) Sept 2013, MBA HEC PARIS February 1, 2014

Professor Sebastian Becker

MBA HEC PARIS February 1, 2014 Professor Sebastian Becker 1. What are the managerial concerns that

1. What are the managerial concerns that managers at Destin Brass have, and why do they look into costing systems for a solution?

The company has three product offerings Valves, Pumps and Flow Controllers. They feel

that margins on Pumps have significantly reduced, whereas they feel that Flow controllers

have a very comfortable margin.

They are perplexed that how come competitors are, on the one hand able to price Pumps at

such a low cost, and on the other, not giving them any competition on Flow controller prices.

Thus they are concerned that maybe they are not calculating their margins properly with the

current costing system, which is leading to an inefficient pricing system.

Currently, they calculate costs of each product by allocating overheads on a flat rate based

on labor costs across each product (the overhead rate is 439% of labor based on their

standard costing system).

Looking into the costing system, and drivers of the overheads, we see that this is indeed the

case. The following table depicts how the overheads would be allocated based on their

drivers, rather than a flat rate

Particulars

Allocation Base

Valves

Pumps

Fl. Cont.

Total

A.

Current Overheads Allocation

Labor cost (439%)

131,700

439,000

112,384

683,084

Per Unit Overhead Allocation Current Gross Margin B. Proposed Activity Based Allocation

17.56

35.12

28.10

35%

22%

42%

 

Set-Up Labor Machine Depreciation Receiving Materials Handling Engineering Packing and Shipping Maintenance Overhead Allocation ABC System Overhead Per Unit ABC Computed Gross Margin

Production Runs

128

640

1,920

2,688

Machine Hours

93,750

156,250

20,000

270,000

Transaction

620

3,876

15,504

20,000

Transaction

6,202

38,760

155,039

200,000

Work-Order Run

20,000

30,000

50,000

100,000

Packing Orders

2,000

14,000

44,000

60,000

Machine Hours

10,417

17,361

2,222

30,000

133,116

260,887

288,685

682,688

17.7

20.9

72.2

35%

40%

-4%