Question 1

Use the Overhead Cost Activity Analysis in Exhibit 5 and other data on manufacturing
costs to estimate product costs for valves, pumps and flow controllers.
Answer:
Below are the estimated direct and indirect product cost of Valves, pumps and flow controllers.
Question 2
Compare the estimated costs you calculate to existing standard unit costs (Exhibit 3) and
the revised unit costs (Exhibit 4). What causes the different product costing methods to
produce such different results?
Answer:

Different results produced by the different costing method is due to change in process of
allocation of indirect costs. In standard costing method, indirect costs are calculated on the basis
of single overhead cost over total run labor whereas in revised cost method, indirect costs
divided into material overhead(48%) which is receiving and handling of material and other
overhead(42.59%) which contains all other indirect costs.

Question 3
What are the strategic implications of your analysis? What actions would
you recommend to the managers at Destin Brass Products Co?

Answer:
Below table`s shows the difference in costs between standard unit costs and ABC costs and
difference in costs between Revised unit costs and ABC costs.

As per the above calculations we can identify that using the ABC costing reduced the cost of
pumps (which contributes 55% of revenue) by $14.34 which is a 22% reduction in the costs
compared to the standard unit costs and 17% reduction in the costs compared to revised unit
costs. Also with ABC costing there is an increase in costs of flow controllers (78% increase) and
company can increase the price of flow controllers because of less competition.
Recommendation for managers is to implement ABC costing method in organization because it
helps in identifying the exact cost for each activity of product and also helps in determining the
exact selling price of product to with stand the competition.

Question 4

Assume that interest in a new basis for cost accounting at Dentin Brass
Products remains high. In the following month, quantities produced and
sold, activities, and costs were all at standard. How much higher or lower
would the net income reported under the activity-transaction-based-system
be than the net income that will be reported under the present, more
traditional system? Why?
Answer:

From the above tables we can clearly say that the ABC costing is more accurate in providing
highest gross margin percentage for the pumps (22% to 40%) where as in flow controllers had a
loss of 4% which can be overcome by increasing the price of flow controllers since flow
controllers is having less competition.