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Manisha Misra Jayanta Chakraborty Tushar Kanti Nayak Payal Patnaik Debajyoti Raha Abhishek Dash Madhulika Sourabh
Manisha Misra Jayanta Chakraborty Tushar Kanti Nayak Payal Patnaik Debajyoti Raha Abhishek Dash Madhulika Sourabh
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Manisha Misra
Jayanta Chakraborty
Tushar Kanti Nayak
Payal Patnaik
Debajyoti Raha
Abhishek Dash
Madhulika Sourabh
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î COMPANY OVERVIEW
î OPERATIONS OF THE COMPANY
î COMPANY·S CONCERN
î CAUSES OF CONCERN
î OBSERVATION OF DENNIS SELMOR
î VIEWS OF JEFFRY DONALD
î APPROACHES OF JANE DEMSEY
î APPROACHES OF ABC ANALYSIS
î TRADITIONAL METHOD OF ACTIVITY COSTING
î CONCLUSION
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î Jane Dempsey was the controller of the company
î The company manufactured BLUE and BLACK
colored pens
î The company had been the low-cost producer of
traditional BLUE & BLACK pens.
î Profit margins were over 20% of sales
î As part of product diversification the company
introduced RED and PURPLE colored pens
î RED pen & PURPLE pen were expected to give 3%
premium & 10% premium respectively.
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î He was the sales manager of the company earlier
î He observed the opportunities to expand the business by
extending the product line into new products that offered
premium selling price over traditional BLUE & BLACK pens
î BLUE and BLACK pens gave 20% profit on sales
î Five years earlier RED pen was introduced but sold at 3%
premium
î Later PURPLE pen was introduced & were expected to 10%
premium respectively.
î Dennis claims that consumers are willing to pay higher prices
for the special colors
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î He was the manufacturing manager of the company
î BLUE & BLACK pens runs smoothly without any
intervention
î Making BLACK ink was simple
î Introducing RED pens create a lot of difficulties
î Ink for the new PURPLE pens also has demanding
specifications but not as demanding as RED pens
î Concerned about the future rumors like introducing
of new colors would hamper the operations in the
company
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î Identification of activities on which costs of various
support cost heads were incurred:
î Indirect Labor - $ 20,000
î Scheduling & Production handling, etc. ² 50%
î Physical Changeover - 40%
î Records Maintenance - 10%
î Fringe Benefits - $ 16,000
(40% 0f Direct Labor + Indirect Labor)
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!!! !!!! "#$! ! !%!
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'(%!!) %!!!! "!!! "!! #!! #!!!!
# !!! !!! &&$$! &% ! &%!%!
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î
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Through ABC method of costing we found that:
î Return on Sales of BLUE BLACK,RED,PURPLE pens
are 21.6%,22.7%,-44.0%,-200.1% respectively
î To produce the new product the company has added
large quantity of overhead: Computer System &
Support Expenses
î The overhead to the new product are high under
ABC method which is positive correct reflect of cost
determination
î As RED & PURPLE incurring huge amount of loss
hence the production should be stopped
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