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ABC Model Analysis for Classic Pen

1) The document discusses an activity-based costing model for Classic Pen Company that assigns costs for producing different colored pens (blue, black, red, purple) to various activities. 2) It provides short-term suggestions to improve profits such as setting minimum order requirements, reducing changeover times, and maintaining stock inventories. 3) Long-term suggestions include conducting market research to expand product lines and bundle colored pens for premium sales.

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RheaPradhan
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191 views2 pages

ABC Model Analysis for Classic Pen

1) The document discusses an activity-based costing model for Classic Pen Company that assigns costs for producing different colored pens (blue, black, red, purple) to various activities. 2) It provides short-term suggestions to improve profits such as setting minimum order requirements, reducing changeover times, and maintaining stock inventories. 3) Long-term suggestions include conducting market research to expand product lines and bundle colored pens for premium sales.

Uploaded by

RheaPradhan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Cost and Management Accounting

Case Study 2
Group Assignment

Classic Pen Company:


Developing an ABC Model
Activity Based Costing Model:
Blue Black Red Purple Total
Sales 75000 60000 13950 1650 150600
Direct Costs
Material Costs 25000 20000 4680 550 50230
Direct Labour 10000 8000 1800 200 20000

Overheads

Indirect Labour
Production Runs 3333 3333 2533 800 1000
Physical Changeover 3042 760 3468 730 8000
Recording 500 500 500 500 2000

Fringe Benefits 6750 5037 3320 892 16000

Computer Systems
Production Runs 2667 2667 2027 640 8000
Recording 500 500 500 500 2000

Machinery 4000 3200 720 80 8000


Maintenance 2000 1600 360 40 4000
Energy 1000 800 180 20 2000

Total Operating Income 16208 13602 -6138 -3302 20370


Return on Sales (%) 22 23 -44 -200 20

Some Suggestions for Classic Pens Company:


Short Term:
1) Set a minimum order requirement for red ink pens and shut down purple pen production.
2) Invest in research and development to reduce setup time for red pens.
Cost and Management Accounting
Case Study 2
Group Assignment

3) Predict sales and build an inventory for all colours of pens, so that pens can be kept in storage
and changeover period is reduced per production order.
4) Incentivise large orders by providing bulk discounts, which would facilitate the reduction in
changeover time.
5) Maintain a stock inventory for raw materials so it doesn’t have to be reordered every time we
get a new order. Further, we could avail bulk benefits for ourselves as well.

Long Term:
1) Conduct market research to check on expanding the business to include new lines. Then do a
cost benefit analysis on buying new machines and scheduling production of various colours of
pens so that the residue of the previous colour doesn’t affect the next colour.
2) Consider selling the new colours as bundles of coloured pens, at premium rates.

Analysed By:
Maitri Vasa PGP/23/396
Manasi Shinde PGP/23/397
Prashashti Dwivedi PGP/23/407
Rhea Pradhan PGP/23/412
Saloni Patil PGP/23/417
Shaktidhar Bhaskar PGP/23/420
Vishal Tandon PGP/23/428

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