Name

NIM
LECTURER
FINAL TEST CASE STUDY

:
:
:
:

Efrizal
29115254
Mr. Erman Sumirat(erman.sumirat@gmail.com/erman.sumirat@sbm-itb.ac.id)
DESTIN BRASS PRODUCTS CO.

(PROGRAM MBA ITB WITH PT. CHEVRON PACIFIC INDONESIA)

QUESTION
1. Use over Head cost analysis in exibit 5 and other data on manufacturing cost to estimate product cost, for valves, pumps and flow controllers
2. Compare the estimate cost you calculate to existing standard unit cost (exibit 3)and revised unit cost (exibit 4) what causes the different product
costing
methode to produce such different results
3. What are the strategyc implications of your analysis? What action would you recommend to manager at destin Brass Product Co.?

4. Assume that interest in new basis for cost accounting at Destin Brass Products remain high. In the following month. Quantities produced and sold
activitis
and cost were all at standard. How much higher or lower would the net income reported under the activity-transaction-based system be th
the net income
that will be reported under the present, more traditional system? Why?
1. Use over Head cost analysis in exibit 5 and other data on manufacturing cost to estimate product cost, for valves, pumps and flow controllers
ABC ALLOCATION BASIS
Description
Machine Depreciation
Receiving
Material Handling
Engineering
Packing & Shipping
Maintenance

Allocation Base
Hour of Use
Transactions
Transactions
Work Order %
Transactions
Hour of Use

Total
10800
129
129
1
30
10800

Valves - % Share of Pumps - % Share of

Transaction
Transaction2

Flow Controllers % Share of

Transaction3

34.72%
3.10%
3.10%
20%
3.33%
34.72%

57.87%
19.38%
19.38%
30.00%
23.33%
57.87%

7.41%
77.52%
77.52%
50%
73.33%
7.41%

Valve
7500

Pumps
12500

Flow Controller
4000

ABC COST SYSTEM

Unit Produce per Month

Valves Cost
Allocation

Cost Decription
Direct Cost
Material
Direct Labor
TOTAL DIRECT COST
Manufacturing Overhead
Machine Depresiation
Set-up Labor
Receiving
Material Handling
Engineering
Packing & Shipping
Maintenance
TOTAL OVER HEAD COST
TOTAL COST

Pumps Cost
Allocation

Valve Cost per Unit

Pumps Cost per

Unit

Flow Controler Cost

Allocation

120000
30000
150000

16
4
20

250000
100000
350000

20
8
28

88000
25600
113600

93750
128
620
6202
20000
2000
10417

12.5
0.02
0.08
0.83
2.67
0.27
1.39
17.75
37.75

156250
640
3876
38760
30000
14000
17361

12.5
0.05
0.31
3.10
2.4
1.12
1.39
20.87
48.87

20000
1920
15504
155039
50000
44000
2222

2. Compare the estimate cost you calculate to existing standard unit cost (exibit 3)and revised unit cost (exibit 4) what causes the different product
costing methode to produce such different results

STANDARD COSTING VS ABC COSTING

Valves Standard
Cost Description
Cost
Direct Cost
Material
Direct Labor
Total Direct Cost
Indirect Cost
TOTAL COST

$
$
$
$
$

Valve ABC Cost

16.00 $
4.00 $
20.00 $
17.56 $
37.56 $

Pumps Standard
Cost

16.00 $
4.00 $
20.00 $
17.75 $
37.75 $

Pumps ABC Cost

20.00 $
8.00 $
28.00 $
35.12 $
63.12 $

Flow Controller
Standard Cost

20.00 $
8.00 $
28.00 $
20.87 $
48.87 $

22.00
6.40
28.40
28.10
56.50

REVISED COST
Cost Description
Direct Cost
Material
Direct Labor
Total Direct Cost
Manufacturing Overhed
Material Overhead
Set-up Labor
Other Overhead
Total Overhead
REVISED UNIT COST

Valves

Pumps

Flow Controllers

16
4
20

20
8
28

22
6.4
28.4

7.68
0.02
21.3
29
49

9.6
0.05
21.3
30.95
58.95

10.56
0.48
8.52
19.56
47.96

STANDARD COSTING VS REVISED COST

Valves Standard Valves Revised Pumps Standard Pumps Revised Flow Controller
Cost Description
Cost
Cost
Cost
Cost
Standard Cost
DIRECT COST
20
20
28
28
28.4
INDIRECT COST
17.56
29
35.12
30.95
28.1
TOTAL COST
37.56
49
63.12
58.95
56.5

Based on the table above, there is a difference in the unit cost. The difference is due to the allocation of overhead of each activity. The calculation of
direct cost and indirect cost.
The direct cost for both costing methods contain material and direct labor but for revised costing, they have an additional direct cost, which is the set
overhead cost.
As for the indirect cost, under the standard costing, allocation of total overhead cost was assigned to the production on the basis of production-run la
of run, it will cause $4.39 of overhead to be allocated to the product which labor was applied.
Under the revised costing, the overhead is being divided into material related overhead and other overhead. The material related overhead includes
materials handling cost which has a rate of 48% of material cost and the rest of the overhead cost is allocated under other overhead. The total overhe
overhead is then divided by the total machine hour, which has a rate of $42.59 per machine hour.

3. I think its beter to use Revised costing because the total cost that result by this calculation lower than the others (standard costin
and of course I will recomend to use Revised Costing to manager Destin Brass product
4. Please see the calculation below for answering this question
From the calculation we can see that if we use Revised Standard Cost , we will get higher net income if compare with the others
NET INCOME UNDER DIFFERENT COST SYSTEM
DESCRIBTION

Actual Selling Price per Units Unit Cost

Profit per Units

Unit Produced

Gross Margin

STANDARD COSTING
Valves
Pumps
Flow Controllers
NET INCOME

57.78
81.26
97.07

37.56
63.12
56.5

20.22
18.14
40.57

7500
12500
4000

35%
22%
42%

ACTIVITY BASE COSTING

Valves
Pumps
Flow Controllers
NET INCOME

57.78
81.26
97.07

37.75
48.87
100.57

20.03
32.39
-3.50

7500
12500
4000

35%
40%
-4%

REVISED STANDARD COST

Valves
Pumps
Flow Controllers
NET INCOME

57.78
81.26
97.07

49
58.95
47.96

8.78
22.31
49.11

7500
12500
4000

15%
27%
51%

w controllers

ifferent product

oduced and sold

ased system be than

w controllers

Flow Controller
Cost per Unit3

TOTAL

22
6.4
28.4

5
0.48
3.88
38.76
12.5
11
0.56
72.17
100.57

ifferent product

Flow Controller
ABC Cost
$
$
$
$
$

22.00
6.40
28.40
72.17
100.57

270000
2688
20000
200000
100000
60000
30000

Flow Controller
Revised Cost
28.4
19.56
47.96

he calculation of unit cost is divided into

t, which is the set-up cost taken from the

production-run labor cost. For every $1.00

verhead includes the receiving and

d. The total overhead under the other

(standard costing and ABC costing)

with the others

Net Income

151650
226750
162280
540680

150234
404863
-14005
541092

65850
278875
196440
541165