Bridgeton Industries Essay

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The Destin Brass Products Co. operates three production lines, which are valves, pumps and flow controllers. These products are used in water purification system. The company faces a problem that one of its competitors is driving the pumps price significantly. Based on Destin Standard Costing System, this price is below what Destin needs to maintain a desirable gross margin. On the other hand, the flow controller’s market environment is highly different with pumps. In flow controllers market, there is less competitors and the price of it is extremely underpriced. In this predicament, Destin Brass Products uses different ways to allocate overhead cost, which are Standard Costing system, Revised Costing system, and Activity Based Costing system. Different system generates different result of product cost. To discover the causes of this difference, the activity-based costing system unit cost is compared with existing standard unit costs and revised unit cost. To recommend a more profitable price strategy, this memo also calculated the target selling price and compares it with actual selling price. Furthermore, the Destin Brass Products should also take log size change into consideration to cut the cost. As a result of applying new costing system, net income reported by activity-based costing system will significantly higher than actual net income. Product Costs Using Activity-Based Costing Method As the overhead cost becomes increasingly complex, applying a single allocation rate to all product is obsolete. To allocate overhead more accurately, Destin Brass Product should analyze the cost drivers and related activity for each item of overhead cost. Based on cost driver analysis, activity-based costing method divides total overhead cost into five cost pools. Machinery cost pool, or depreciation and maintenance cost pool, is related to machine usage. Thus

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