Classic Pen

Topics: Costs, Variable cost, Cost Pages: 3 (645 words) Published: November 1, 2010
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

526 Setup time/hrs

Activity Rate

Indirect Costs

Direct Costs

Direct Labor
Direct Materials

3.) Calculate the revised product costs for the four pens under the ABC system BlueBlackRedPurpleTotal
Direct Costs
Direct Material 25,000 20,000 4,680 550 50,230
Direct Labor10,000 8,000 1,800 200 20,000
Fringe Benefit4,000 3,200 720 80 8,000
Total Direct Cost39,000 31,200 7,200 830 78,230
Indirect cost
Production Runs7,334 7,334 5,574 1,760 22,005
Setup Time4,258 1,065 4,854 1,022 11,199
Parts Admin1,200 1,200 1,200 1,200 4,800
Machine Hours7,0005,600 1,260 140 14,000
Total Indirect Cost19,792 15,199 12,888 4,122 52,001
Total Cost58,792 46,399 20,088 4,952 130,231
Cost per Unit1.1761.162.2324.952

4.) Create a revised income statement under ABC
Income StatementBlueBlackRedPurpleTotal
Revenue75,000 60,000 13,950 1,650 150,600
Cost58,792 46,399 20,088 4,952 130,231
Profit16,207 13,601 (6,139)(3,302)20,369
Profit Margin21.6%22.7%-44.0%-200%13.5%

5.) Is the company more or less profitable or the same under ABC compared to the traditional costing system? The company overall has the same profitability under ABC system compared to the traditional costing system. The costs were allocated differently to each item. Some individual pen colors (Blue and Black) are more profitable than others (Red and Purple)...
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