Classic Pen Company: Developing an ABC Model

Introduction:

Classic Pen Company has always manufactured blue and black pens, but has
recently expanded to make red and purple pens with a 3% and 10% extra,
respectively, added to the sales pricing. The potential was introduced since it
appeared to be more profitable due to increased corporate earnings. There was
also talk of adding more specialty colours because customers were willing to pay
a higher price for them.

Analysis

However, according to the most recent budget figures, overall revenue is low, and
new items may not be making as much money as older ones. In addition, while
creating pens other than blue or black, processes were delayed due to a
purification process that had to be followed to remove any remaining ink from
the equipment. This was particularly important with red pens, but black pens
were much easier to accept because the leftover blue ink didn't have to be
replaced. As a result, overhead expenses soared, and many procedures'
scheduling became erratic. At the time of writing, the administrative burden rate
was 300 percent of direct cost. Activity-based cost analysis could be used to
mitigate this. It is also feasible to alter the time distribution in order to save the
time and attention of industrial workers.

Submitted by: Akula Padma Priya, PGP12101, SECB