Destin

Question 1

Use the Overhead Cost Activity in Exhibit 5 and other data on manufacturing costs to estimate product costs for valves, pumps, and flow controllers

Refer attached sheet (Excel) –Calculation method

Question 2

Compare the estimated costs you calculate to existing standard unit costs (Exhibit 3) and the revised costs (Exhibit 4). What causes the different product costing methods to produce such different results?

The different results from the different product costing methods are largely influenced by the allocation and division of overhead costs in both materials and machine. ABC unit costs breaks out and allocates the material overhead and other overhead in to smaller cost drivers using transactions in many areas. The revised unit costs breaks out and allocates overhead into material and other while the standard unit costs clumps all overhead together.

Question 3

What are the strategic implications of your analysis? What actions would you recommend the mangers at Destin Brass Products Co?

Strategic implications would be that the margins and amount if income for each of the products is very different using different overhead cost allocation methods. Since the competitors only probably produce one product (pumps) so the overhead costs aren’t subsidized by the other products and they are able to lower their prices and still maintain good margins. In order to reduce the cost of the flow controllers in the production process, they could find more efficient ways and savings in the areas of packing and shipping as well as reduce the amount of time spent by engineers. Destin Brass Products has not adopted the most profitable distribution system in the flow controller market. They could make more profits if they could mimic the distribution of their valves and pumps. Is should be possible. I would recommend the go with the ABC allocation method lower their prices on pumps competitively and the same time, find more efficient ways to pack/ship/engineer the...