Scribd Logo
Upload

Welcome to Scribd!

  • 780 views

    Destin Brass Case Analysis

    Uploaded by

    felipevwa
    Managers at Destin Brass are concerned about declining margins for their pump products and consistent high margins for their flow controller products. They believe their current overhead allocation method, which uses a flat rate based on labor costs, may be inaccurately calculating product costs and leading to inefficient pricing. Implementing an activity-based costing system that allocates overhead based on cost drivers like machine hours and transactions more accurately shows pumps have higher overhead costs per unit than indicated previously, which explains the lower margins. The new system also reveals flow controllers have negative margins, highlighting issues the previous system obscured.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Destin Brass Case Analysis

    Uploaded by

    felipevwa
    780 views1 page
    Managers at Destin Brass are concerned about declining margins for their pump products and consistent high margins for their flow controller products. They believe their current overhead allocation method, which uses a flat rate based on labor costs, may be inaccurately calculating product costs and leading to inefficient pricing. Implementing an activity-based costing system that allocates overhead based on cost drivers like machine hours and transactions more accurately shows pumps have higher overhead costs per unit than indicated previously, which explains the lower margins. The new system also reveals flow controllers have negative margins, highlighting issues the previous system obscured.

    Original Title

    228111488 Destin Brass Case Analysis

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Managers at Destin Brass are concerned about declining margins for their pump products and consistent high margins for their flow controller products. They believe their current overhead allocation method, which uses a flat rate based on labor costs, may be inaccurately calculating product costs and leading to inefficient pricing. Implementing an activity-based costing system that allocates overhead based on cost drivers like machine hours and transactions more accurately shows pumps have higher overhead costs per unit than indicated previously, which explains the lower margins. The new system also reveals flow controllers have negative margins, highlighting issues the previous system obscured.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    780 views1 page

    Destin Brass Case Analysis

    Uploaded by

    felipevwa
    Managers at Destin Brass are concerned about declining margins for their pump products and consistent high margins for their flow controller products. They believe their current overhead allocation method, which uses a flat rate based on labor costs, may be inaccurately calculating product costs and leading to inefficient pricing. Implementing an activity-based costing system that allocates overhead based on cost drivers like machine hours and transactions more accurately shows pumps have higher overhead costs per unit than indicated previously, which explains the lower margins. The new system also reveals flow controllers have negative margins, highlighting issues the previous system obscured.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 1

    Prashant Garg

    Individual Assignment 2 (MAC Destin Brass)


    Sept 2013, MBA HEC PARIS
    February 1, 2014
    Professor Sebastian Becker

    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

    17.56 35.12 28.10

    Current Gross Margin

    35% 22% 42%

    B. Proposed Activity Based Allocation

    Set-Up Labor Production Runs 128 640 1,920 2,688
    Machine Depreciation Machine Hours 93,750 156,250 20,000 270,000
    Receiving Transaction 620 3,876 15,504 20,000
    Materials Handling Transaction 6,202 38,760 155,039 200,000
    Engineering Work-Order Run 20,000 30,000 50,000 100,000
    Packing and Shipping Packing Orders 2,000 14,000 44,000 60,000
    Maintenance Machine Hours 10,417 17,361 2,222 30,000
    Overhead Allocation ABC System

    133,116 260,887 288,685 682,688
    Overhead Per Unit

    17.7 20.9 72.2

    ABC Computed Gross Margin

    35% 40% -4%

    You might also like