Destin Brass Products Co.

502 Words3 Pages
Destin Brass Products Co. was established in 1984 by Abbot, Guidry and Scott, who held significant shares of ownership in the company. Their products mainly included valves, pumps and flow controllers. The company grew rapidly and even became the sole supplier of valves. However, after Abbott and Guidry knew that the manufacturing skills of valves were also fit for producing pumps and flow controllers, they began to manufacture new products. The pumps markets were even larger than valves, specifically, valves occupying 24%of the company revenues, pumps at 55% and flow controllers taking up 21%. However, their competitors’ reducing the pump price affected the major production line badly, which also caused a lower profit than before. After analysis the reason for competitors’ reducing pumps price, they were confronted with the problem that the traditional cost system caused high product cost. Comparing the three cost systems, it can be found that the amount of direct material and direct labor was same. Only in revised cost system, set-up labor is allocated in direct cost. The major difference among the three is the allocation of indirect cost. Firstly, for standard unit cost, as shown in case exhibit 3, total indirect cost is $682,688, total run labor is 155,600, which calculate the overhead rate 439%. Besides, revised unit cost (exhibit 4 in case) allocated two overhead cost, namely, material related overhead cost (including receiving and material handling) and other overhead cost. The data in exhibit4 shows the material related overhead absorption rate is $220,000/ 458,000=48% and other overhead absorption rate is $460,000/10800hr = $42.59 per hour. Furthermore, the activity based unit cost allocated the overhead cost in seven different indirect costs. Each of them has its own base allocation cost. Details are shown in the Table1 (page 2).Comparing with the three

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