Tijuana Bronze Machining

Tijuana Bronze Machining

Case Analysis

Maryann Simmons

2015

Contents

Executive Summary 2

Calculation Report Analysis 2

1. Product costs per unit for valves, pumps, and flow controllers 2

2. Estimation of Contribution Margins for the three products 3

3. Revised Product Costs 3

4. Product Costs based on Activity-Based Costing 4

5. Comparisons of Reported Income between the current cost system and the ABC system 5

6. Comparison of Product Profitability under the Three Costing Systems 6

7. Using ABC Analysis to re-evaluate JIT purchasing policy for flow controllers 7

8. Recommendations for management 8

Valves 8

Pumps 8

Flow Controllers 8

9. Recalculation of Flow Controller cost per unit 10

Executive Summary

This report provides an in depth analysis on Tijuana Bronze Machining which manufactures many types of high-quality bronze fittings such as valves, pumps, and flow controllers. The calculation report provides cost data for the current cost method, a revised cost method, and using the activity-based costing method in an attempt to discover problems and help TBM to find ways to generate greater profitability. The latter part of the analysis addresses the problem areas with each product and gives suggestions to managers for how they may increase profit margins. Finally, this analysis ends with suggesting a change to how flow controllers are engineered by providing updated cost information.

Calculation Report Analysis

1. Product costs per unit for valves, pumps, and flow controllers

Based on the information from exhibit two, the information concerning cost per unit for each product is as follows:

Cost per Unit |

  | Valves | Pumps | Flow Controllers |

Direct Materials | $ 16.00 | $ 20.00 | $ 22.00 |

Direct Labor (based on run labor) | $ 4.00 | $ 8.00 | $ 6.40 |

Manufacturing Overhead | $ 17.55 | $ 35.10 | $ 28.08 |

Total Cost...