Cost and Flow Controllers

 Essay about Cost and Flow Controllers

The Sippican Corporation Case Study (A) Managing Summary Sippican Corporation -- a dealer of valves, pumps, and flow remotes to companies of water purification gear – experienced concerns due to the fact that its competitors have been reducing the price of pumping systems, which was a significant product line. In accordance to Sippican's cost accounting system further decrease in the buying price of pumps may not be satisfactory as due to past price reductions the margin upon pumps have already declined from the planned 35% to 5%. Detailed and alternative examination of the costs – just like Activity Primarily based Cost analysis – uncovers alternatives to get the administration to decide on pricing, efficiency actions, and application.

Sippican Corporation uses a straightforward cost accounting system pertaining to performance evaluation of the distinct products manufactured in order to be able to make upcoming decision. Indications that it is not working properly happen to be that however the 3 products require several effort from overhead Sippican still designates overhead costs by a flat level across every products utilizing a production-run immediate labor price allocation proportion assuming that there exists a direct relationship between over head and the output quantity based upon this percentage. The disadvantage than it is that plenty of cost is established based on just one driver. The situation indicates that Sippican is usually extending their relations creating more complex and segmented instructions for which the simple accounting system is too superficial.

Total production overhead of Sippican makes up about 35% with the sales revenue. The afterwards detailed ABC analysis demonstrates that significant differences arise in the cost to produce the different products. An even more detailed price analysis (vs. simple or perhaps contribution margin methods) gives a clear understanding of the costs and profitability of each product to support proper managements decisions or maybe avoid a financial/profitability catastrophe. Based on the above pros and cons Sippican should not get away from assigning overhead costs.

To determine the expense cost costs the total cost in the specific pools plus the assigned driver and their amounts have been used. Exhibit one particular and 5 provide the suitable figures keeping in mind that the volume of the drivers is utilization. Overhead charge equals the overall cost in the pool divided by the total amount of driver (2/4).

1

2

3

four

5

Pool/activity Machine-related expenditures Set-up labor Receiving and production control Engineering The labels and delivery

Cost in pool $334 800 $117 000 $15 600 $78 000 $109 200

Cost driver Machine hours System hours Works Engineering hours Shipments

Total amount Expense of rider Rate (2/4) 11 2 hundred 3 4 hundred 345 900 340 $29. 89 $34. 41 $45. 22 $86. 67 $321. 18

With the overhead price available the price per device for each from the 3 products can be determined using the following equation: (overhead rate of driver 5. total volume of new driver used) / number of devices produced. 1 Cost component OH Price 2 a few Valve =(1*2)/3 2 several Pumps =(1*2)/3 2 several =(1*2)/3 Circulation controllers

Total Produced amount of # of models driver

Direct Labor price Direct materials cost Machine-related expenses $29. 89 Installation labor $34. 41 Obtaining and creation control $45. 22 Executive $86. 67 Packaging and shipping $321. 18 Total cost every unit: Genuine selling price of any unit: Major margin Major margin (%) Gross margin (%) of original method Delta

3750 100 twenty 60 40

7500 7500 7500 7500 7500

Total Total Expense per Made Cost every Produced Price per volume of sum of product # of units unit # of units device driver new driver $12. 35 $16. twenty-five $13. 00 $16. 00 $20. 00 $22. 00 $14. 96 6250 12500 $14. 95 1200 4000 $8. ninety-seven $0. 46 600 12500 $1. 66 2700 4000 $23. twenty three $0. 12 100 12500 $0. thirty-six 225 4000 $2. 54 $0. 69 240 12500 $1. sixty six 600 4000 $13. 00 $1. 71 100 12500 $2. 57 200 4,000 $16. 06 $46. 28 $57. 44 $98. 85 $79. 00 $70. 00 $95. 00 $32. seventy two $12. 56 -$3. 70 41% 18% -4% 35% 5% 38% 6% 13% -42%

The ABC examination of expense and profitability shows major...

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