CLASSIC PEN COMPANY

SUMMARY BACKGROUND
Produced 2 Pens- Blue & Black. Started Producing Red and Purple Pens As Well. The Profits Started to Decrease With the Introduction of 4 Colors. All pens produced in one factory. Ink is filled in the pens after the colors are mixed. This makes machinery to be cleaned during transition from one color to another. Currently applies overhead on the basis of direct labor cost.

Income Statement
Blue Sales Direct Materials Direct Labor Manufacturing Overhead Total Manufacturing Costs Gross Margin Gross Margin % Unit Product Cost Production in Units 75.000 25.000 10.000 30.000 65.000 10.000 13,33% 1,30 50.000 Black 60.000 20.000 8.000 24.000 52.000 8.000 13,33% 1,30 40.000 Red 13.950 4.680 1.800 5.400 11.880 2.070 14,84% 1,32 9.000 Purple 1.650 550 200 600 1.350 300 18,18% 1,35 1.000 Total 150.600 50.230 20.000 60.000 130.230 20.370 13,53%

Applied OH %300 of direct labor cost

Activities and Activity Rates

Activity Measure Production Planning Color Transition Bookkeeping Information Center Machinery, Energy and Maintenance Invoicing and Shipping # of Process Prep Time # of products # of Process Machine Hours # of products

First Stage Allocation

Activity Overhead Measure Consumption Production Planning Color Transition Bookkeeping Information Center Machinery, Energy and Maintenance Invoicing and Shipping # of Process Prep Time # of products # of Process Machine Hours # of products 30,00% 24,00% 6,00% 13,33% 23,33% 3,33%

Activity Measure Production Planning Color Transition Bookkeeping Information Center Machinery, Energy and Maintenance Invoicing and Shipping
Blue Production in Units Machine Hours Required/unit # of Process Prep Time/unit 50.000 0,1 50 200

Total Activity 150 526 100.000 150 10.000 100.000

Purple 1.000 0,1 12 48

# of Process Prep Time # of products # of Process Machine Hours # of products

Black 40.000 0,1 50 50 Red 9.000 0,1 38 228

First Stage Allocation

Activity Rates Production Planning Color Transition Bookkeeping Information Center Machinery, Energy and Maintenance Invoicing and Shipping Total # of Process Prep Time # of products # of Process Machine Hours # of products Overhead Consumption 30,00% 24,00% 6,00% 13,33% 23,33% 3,33% Overhead Costs 18.000 14.400 3.600 8.000 14.000 2.000 60.000

Activity Rates
Activity Measure Production Planning Color Transition Bookkeeping Information Center Machinery, Energy and Maintenance Invoicing and Shipping # of Process Prep Time # of products # of Process Machine Hours # of products Total Activity 150 526 100.000 150 10.000 100.000

Activity Rates
Activity Measure Production Planning Color Transition Bookkeeping Information Center Machinery, Energy and Maintenance Invoicing and Shipping Total # of Process Prep Time # of products # of Process Machine Hours # of products Total Activity 150 526 100.000 150 10.000 100.000 Overhead Costs 18.000 14.400 3.600 8.000 14.000 2.000 60.000 Activity Rates 120 27,38 0,04 53,33 1,40 0,02

Second Stage Allocation

Blue Production in Units Machine Hours Required/unit # of Process Prep Time/unit 50.000 0,1 50 200 Black 40.000 0,1 50 50 Red 9.000 0,1 38 228 Purple 1.000 0,1 12 48

Second Stage Allocation

Blue Production Planning Color Transition Bookkeeping Information Center Machinery, Energy and Maintenance Invoicing and Shipping Total 6.000,00 5.475,29 1.800,00 2.666,67 7.000,00 1.000,00 23.941,95
Blue Production in Units Machine Hours Required/unit # of Process Prep Time/unit 50.000 0,1 50 200

Black 6.000,00 1.368,82 1.440,00 2.666,67 5.600,00 800,00 17.875,49

Black 40.000 0,1 50 50

Red 4.560,00 6.241,83 324,00 2.026,67 1.260,00 180,00 14.592,49

Red 9.000 0,1 38 228

Purple 1.440,00 1.314,07 36,00 640,00 140,00 20,00 3.590,07

Purple 1.000 0,1 12 48

Activity Measure Production Planning Color Transition Bookkeeping Information Center Machinery, Energy and Maintenance Invoicing and Shipping Total # of Process Prep Time # of products # of Process Machine Hours # of products

Activity Rates 120 27,38 0,04 53,33 1,40 0,02

Product Costing
Blue Sales Direct Materials Direct Labor Overhead Production Planning Color Transition Bookkeeping Information Center Machinery, Energy and Maintenance Invoicing and Shipping Total Manufacturing Costs Gross Margin Gross Margin % Unit Product Cost vs Traditional Costing Gross Margin % Unit Product Cost 13% 1,30 13% 1,30 15% 1,32 18% 1,35 14% 6.000,00 5.475,29 1.800,00 2.666,67 7.000,00 1.000,00 58.941,95 16.058,05 21% 1,18 6.000,00 1.368,82 1.440,00 2.666,67 5.600,00 800,00 45.875,49 14.124,51 24% 1,15 4.560,00 6.241,83 324,00 2.026,67 1.260,00 180,00 21.072,49 -51% 2,34 1.440,00 1.314,07 36,00 640,00 140,00 20,00 4.340,07 -163% 4,34 18.000 14.400 3.600 8.000 14.000 2.000 130.230,00 20.370,00 14% 75.000 25.000 10.000 Black 60.000 20.000 8.000 Red 13.950 4.680 1.800 Purple 1.650 550 200 Total 150.600 50.230 20.000

(7.122,49) (2.690,07)