Destin Brass Products co

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Introduction:Destin Brass Product Co. is a pump, valves and follow controller manufacturer, with focus on pumps manufacture line with 55% of Destin Brass revenue. Destin Brass competitors price cutting was going on since competitors reducing price on pump. Destin Brass did no foundry work and without unique design advantage, they have problem on munitions same price with same volumes.

Question1

Use the Overhead Cost activity Analysis in Exhibition 5 and other data on manufacturing cost to estimate product cost for values, pumps and flows controllers .

Based on the information in the case, I estimate the costs of valves, pumps, and flow controllers to be $39, $81 and $147 dollars respectively. Estimations are based on the number of transactions that occur across various overhead components like receiving/material handling, packing/shipping, engineering, and maintenance.

Total Manufacturing Cost Material Cost / unit Units/month Material Cost / Month Labor Cost Production Run / month Set-up Labor hours/ Production run Labor Hrs / Unit Set up Labor hours / month Run Labor hours / month Labor Cost / Hour Set up Cost / Month Run Labor / month Machine Cost (Usage) Machine Usage hour / unit Machine Usage hour / Month Machine Usage Cost / Month Overhead Cost Receiving Cost Handling Cost Packaging Cost Engineering Cost Maintenance Cost Total Cost / Month Standard unit Cost

Valves 16 7500 120000 1 8 0.25 8 1875 16 128 30000

Pumps 20 12500 250000 1-5 8 0.5 40 6250 128- 640 100000- 500000

Flow Controllers 22 4000 88000 1-10 12 0.4 120 1600 192- 1920 25600- 256000

10800 25

0.5 3750 93750

0.5 6250 156250

0.2 800 20000

20000 200000 60000 100000 30000

620 6202 12000 20000 10417 293116 39.1

3876 38760 18000 30000 17361 1014887 49.1 -81.2

7752- 15504 77519- 155039 18000 30000 2222 586685 67.3 88.6- 146.7

Question 2. Compare the estimated cost you calculate to existing unit cost(exhibition 3) and the revised unit costs (exhibition 4). What causes the different products costing methods to produce such different results?

Standard Unit Cost (activity Analysis) Standard Unit Cost (Traditional) Standard unit cost (revised)

Valves 39.10 37.56 49.00

Pumps 81.20 63.12 58.95

Flow Controllers 146.70 56.50 47.96

Traditional methods - Cause the pump to be more expensive - The price of the Flow controller is cheaper than others * Traditional methods allocates overhead as a % of direct labor * Therefore it does not take into account the fact that most of direct labor go towards flow controller * Conclusion Flow controller can be cheaper as the production comes from other 2 products. Revised Methods - Valves Appear more expensive, however the pump and Flow controller price has been reduced than other methods * Revised methods applies overhead at an absorption rate based on material related overhead * Since flow controllers dont use much more material than pump but on labor. This is not reflect in the revised standard unit cost. * Conclusion Flow controller appear much less expensive because overhead associates with labor going into making flow controller was being allocated to other 2 products

Question 3 What are the strategic implications of your analysis? What actions would you recommend to the managers at Destin Brass Product Co. ?

reduce the production runs of flow controllers reducing the number of transactions for receiving and handling of the flow controllers reduce the number of shipments

reduce the production runs of flow controllers and pumps from10 &5 to 1

reducing the number of transactions for receiving and handling of the flow controllers

Question 4 Assume that the interest in a new basis for cost accounting at Destin Brass Product remain high. In the following month quantities produced and sold, activities and cost were all at standard. How much higher or lower would the net income reported under the activity transaction based system be than the net income that will be reported under the present, more traditional system? Why?

In the next month, quantities produced, sold, activities and expenses al stabilize and also, the net income mentioned should not way under the activity based system than under the traditional system Because net income is revenues minus all cost. Moreover, the new accounting will not change revenues and the total cost. It will provide the better process for assigning the costs form the different product lines. Thus, the net income should stay stable.