Plum Electronics
ABC case study: Plum Electronics
Plum Electronics, a division of Berry Corporation, manufactures two large-screen television models: the Mammoth, which has been produced since 2009 and sells for $990, and the Maximum, a newer model introduced in early 2011 that sells for $1,254. Based on the following income statement for the year ended November 30, 2013, senior management at Berry have decided to concentrate Plum’s marketing resources on the Maximum model and to begin to phase out the Mammoth model because Maximum generates a much bigger operating income per unit.
Plum Electronics Income Statement for the Fiscal Year Ended November 30, 2013
Mammoth
Maximum
Total
Revenues
$21,780,000
$5,016,000
$26,796,000
Cost of goods sold
13,794,000
3,511,200
17,305,200
Gross margin
7,986,000
1,504,800
9,490,800
Selling and administrative expense
6,413,000
1,075,800
7,488,800
Operating income
$1,573,000
$429,000
$2,002,000
Units produced and sold
22,000
4,000
Operating income per unit sold
$71.50
$107.25
Details for cost of goods sold for Mammoth and Maximum are as follows:
Mammoth
Maximum
Total
Per unit
Total
Per unit
Direct materials
$5,033,600
$228.80
$2,569,600
$642.40
Direct manufacturing labour a
435,600
19.80
184,800
46.20
Machine costs b
3,484,800
158.40
316,800
79.20
Total direct costs
$8,954,000
$407.00
$3,071,200
$767.80
Manufacturing overhead costs c
$4,840,000
$220.00
$440,000
$110.00
Total cost of goods sold
$13,794,000
$627.00
$3,511,200
$877.80
a
Mammoth requires 1.5 hours per unit and Maximum requires 3.5 hours per unit. The direct manufacturing labour cost is $13.20 per hour. b Machine costs include lease costs of the machine, repairs, and maintenance. Mammoth requires 8 machine-hours per unit and Maximum requires 4 machine-hours per unit. The machine-hour rate is $19.80 per hour. c Manufacturing overhead costs are allocated to products based on machine-hours at the rate of $27.50 per hour.
Plum’s controller, Steve Jacobs, is advocating the
Plum Electronics, a division of Berry Corporation, manufactures two large-screen television models: the Mammoth, which has been produced since 2009 and sells for $990, and the Maximum, a newer model introduced in early 2011 that sells for $1,254. Based on the following income statement for the year ended November 30, 2013, senior management at Berry have decided to concentrate Plum’s marketing resources on the Maximum model and to begin to phase out the Mammoth model because Maximum generates a much bigger operating income per unit.
Plum Electronics Income Statement for the Fiscal Year Ended November 30, 2013
Mammoth
Maximum
Total
Revenues
$21,780,000
$5,016,000
$26,796,000
Cost of goods sold
13,794,000
3,511,200
17,305,200
Gross margin
7,986,000
1,504,800
9,490,800
Selling and administrative expense
6,413,000
1,075,800
7,488,800
Operating income
$1,573,000
$429,000
$2,002,000
Units produced and sold
22,000
4,000
Operating income per unit sold
$71.50
$107.25
Details for cost of goods sold for Mammoth and Maximum are as follows:
Mammoth
Maximum
Total
Per unit
Total
Per unit
Direct materials
$5,033,600
$228.80
$2,569,600
$642.40
Direct manufacturing labour a
435,600
19.80
184,800
46.20
Machine costs b
3,484,800
158.40
316,800
79.20
Total direct costs
$8,954,000
$407.00
$3,071,200
$767.80
Manufacturing overhead costs c
$4,840,000
$220.00
$440,000
$110.00
Total cost of goods sold
$13,794,000
$627.00
$3,511,200
$877.80
a
Mammoth requires 1.5 hours per unit and Maximum requires 3.5 hours per unit. The direct manufacturing labour cost is $13.20 per hour. b Machine costs include lease costs of the machine, repairs, and maintenance. Mammoth requires 8 machine-hours per unit and Maximum requires 4 machine-hours per unit. The machine-hour rate is $19.80 per hour. c Manufacturing overhead costs are allocated to products based on machine-hours at the rate of $27.50 per hour.
Plum’s controller, Steve Jacobs, is advocating the