Destin Brass Co. Essay

388 Words2 Pages
Destin Brass Products Co. 1. The estimated total product costs per unit for valves, pumps and flow controllers are $37.76, $48.87 and $100.58 respectively, as outlined below: | Valves ($) | Pumps ($) | Flow Controllers ($) | Material | 16.00 | 20.00 | 22.00 | Direct labour | 4.00 | 8.00 | 6.40 | Machine depreciation | 12.50 | 12.50 | 5.00 | Set-up labour | 0.02 | 0.05 | 0.48 | Receiving | 0.08 | 0.31 | 3.88 | Materials handling | 0.83 | 3.10 | 38.76 | Packing & shipping | 0.27 | 1.12 | 11.00 | Engineering | 2.67 | 2.40 | 12.50 | Maintenance | 1.39 | 1.39 | 0.56 | | | | | TOTAL COST/ UNIT | $37.76 | $48.87 | $100.58 | 2. For each of the three costing procedures, different methods are used to allocate overheads, which is why the results differ. With standard unit costing, overheads are allocated based on direct labour only. The revised costing method separates material related overheads from other overheads, and costs are only allocated to each product for part of the overhead (multiplying the material overhead rate of 48% to the corresponding direct material cost allocated to each product). With activity based costing, each indirect cost has a different allocation base and rate. Each cost is then allocated to the products according to each product’s usage of the indirect cost. 3. From this analysis, and based on the different figures given by the standard unit procedure and activity based costing, we can conclude that Destin Brass co. is undervaluing flow controllers and can in fact afford to raise the price. This may explain why past price increases have not negatively affected demand. I recommend that the company adopt an activity-based costing strategy which will allow for the price of flow controllers to be increased and that of pumps to be decreased whilst still maintaining the desired 35% gross margin. This
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