Destin Brass Case
By: dantong • February 15, 2017 • Case Study • 652 Words (3 Pages) • 1,300 Views
Destin Brass Products
- What causes the three different costing methods to produce such different results in the unit cost of Destin’s pumps, valves and flow controllers?
What are the unit costs of the products under each of the three costing methods?
Why do the unit costs change so much from method to method?
[pic 1]
Valves | Pumps | Flow controller | |
Standard | 37.56 | 63.12 | 56.5 |
Revised | 49 | 58.95 | 47.96 |
ABC | 37.73 | 48.8 | 100.82 |
When I compare the price of the pumps under the three different methods, I found that I under the traditional method, the price is the highest. This is because under this method, it allocated overhead as a part of direct labor, but not take percentage in flow controller. Because of that, the price of the flow controller is cheaper, that the overhead goes into the valves and pumps. While under ABC method, the direct labor that 78% of receive, 78% of handle and 73% of packing will go toward to flow controller. Therefore, under ABC method, the price of the flow controller is the most expensive. Under the revised method, valves are the most expensive, pumps is in the middle level price and the price of flow controller appears cheaper than the price under the other two methods, especially ABC method. This is because that the revised method applies overhead at an absorption rate based on material related overhead. Moreover, under revised method, the price of flow controller is less expense and the price of pumps and valves are more expensive, because the cost of labor that making flow controller is allocated to valves and pumps.
- What are the strategic implications for Destin of your analysis?
What are impacts upon margins for each product?
What changes in production/distribution processes might Destin make to reduce the unit cost of flow controllers?
How might Destin approach their customers?
Under the ABC method, the profit margin of valves is still 35%, the same as the goal profit margin, so there is not need to change the price of valves. While, the profit margin of pumps is 40%, which is higher than their goal. So the company can reduce the price of pumps, reduced 5% to have a profit margin of 35%. In this way, the company will have a price advantage in the market, also will attract more customers. For flow controller, under the ABC method, the profit margin is -4%, so the price should be increased to 136.1 to reach the profit margin of 35%.
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