Destin Brass Products

Destin Brass Products Co. Case 1. Cost: Material $22 Set-up Labor $0. 48 Direct Labor $6. 4 Machine Depreciation (0. 2 hours per unit *$25 per hour of use) $5 Receiving and Material Handing (78% * $220000/4000) $42. Engineering (50%*$100000/4000) $12. 5 Packing and Shipping (73%*$60000/4000) $10. 95 Maintenance (7%*$30000/4000) $0. 525 Total Cost per Flow Controller $100. 755 2 Cost| Traditional| Revised| ABC| Set-up| 16. 45%| 71. 43%| 71. 43%| Machine Depreciation| 16. 45%| 7. 4%| 7. 4%| Receiving & Handling| 16. 45%| 19. 2%| 78%|Engineering| 16. 45%| 7. 4%| 50%| Packing & Shipping| 16. 45%| 7. 4%| 73%| Maintenance| 16. 45%| 7. 4%| 7%| 0. 4*4000*16/9725*16 = 16. 45% 12*10/168 = 71. 43% 0. 2 * 4000/10800 = 7. 4% 3. Under the traditional cost accounting system, the company allocated the total overhead cost assigned to production on the basis of production-run labor cost. The unit labor cost of flow controllers is $6. 4. The unit overhead cost allocated to it is only $28. 10. When u sing the revised cost accounting system, the company allocated the overhead cost based on machine hours.The machine hour of flow controllers is the lowest among the three products. So whether the company uses direct labor dollars or machine hours, the overhead costs allocated to flow controllers are relatively low since they consume less of this cost basis. When use ABC system, the company allocates the overhead cost on the basis of transactions. Among all the products, the company spends 78% of its receiving and materials handling, 73% of packing and shipping and 50% of engineering efforts on flow controllers.Since flow controller production use most of the transactions, the costs assigned to flow controllers are higher under ABC than they are under the traditional cost accounting system. 4. After using the ABC costing system, more overhead costs are allocated to flow controllers and less to valves and pump. Since other factors are stay the same, the net income for valves and pumps will increase and the net income for flow controllers will decrease. Income does not change.