Classic Pen
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
Blue Black Red Purple Total
Direct Costs Direct Material 25,000 20,000 4,680 550 50,230 Direct Labor 10,000 8,000 1,800 200 20,000 Fringe Benefit 4,000 3,200 720 80 8,000
Total Direct Cost 39,000 31,200 7,200 830 78,230
Indirect cost Production Runs 7,334 7,334 5,574 1,760 22,005 Setup Time 4,258 1,065 4,854 1,022 11,199 Parts Admin 1,200 1,200 1,200 1,200 4,800 Machine Hours 7,000 5,600 1,260 140 14,000
Total Indirect Cost 19,792 15,199 12,888 4,122 52,001
Total Cost 58,792 46,399 20,088 4,952 130,231
Cost per Unit 1.176 1.16 2.232 4.952
4.) Create a revised income statement under ABC
Income Statement Blue Black Red Purple Total
Revenue 75,000 60,000 13,950 1,650 150,600
Cost 58,792 46,399 20,088 4,952 130,231
Profit 16,207 13,601 (6,139) (3,302) 20,369
Profit Margin 21.6% 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)
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
Blue Black Red Purple Total
Direct Costs Direct Material 25,000 20,000 4,680 550 50,230 Direct Labor 10,000 8,000 1,800 200 20,000 Fringe Benefit 4,000 3,200 720 80 8,000
Total Direct Cost 39,000 31,200 7,200 830 78,230
Indirect cost Production Runs 7,334 7,334 5,574 1,760 22,005 Setup Time 4,258 1,065 4,854 1,022 11,199 Parts Admin 1,200 1,200 1,200 1,200 4,800 Machine Hours 7,000 5,600 1,260 140 14,000
Total Indirect Cost 19,792 15,199 12,888 4,122 52,001
Total Cost 58,792 46,399 20,088 4,952 130,231
Cost per Unit 1.176 1.16 2.232 4.952
4.) Create a revised income statement under ABC
Income Statement Blue Black Red Purple Total
Revenue 75,000 60,000 13,950 1,650 150,600
Cost 58,792 46,399 20,088 4,952 130,231
Profit 16,207 13,601 (6,139) (3,302) 20,369
Profit Margin 21.6% 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)