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Harvard Business School Case #103-015 198117 Case Software # XLS-666

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220 views9 pages

Harvard Business School Case #103-015 198117 Case Software # XLS-666

Uploaded by

saifrahman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Classic Pen Co.

: Developing an ABC Model


Harvard Business School Case #103-015 198117
Case Software # XLS-666

Copyright © 2010 President and Fellows of Harvard College. No part of this product may be reproduced, stored in a
retrieval system or transmitted in any form or by any means—electronic, mechanical, photocopying, recording or
otherwise—without the permission of Harvard Business School.

GROUP 6
Name Roll Number
Aditi Tiwari PGP11137
Aditya Mehta PGP11138
Mohini Sarkaar PGP11162
Shwet Oberoi PGP11188
Varnika Singh PGP11196
Expense Category Expense
Indirect Labor $20,000
Fringe Benefits $16,000
Computer Systems $10,000
Machinery $8,000
Maintenance $4,000
Energy $2,000.00
Total $60,000
Exhibit 1 Traditional Income Statement

Blue Black Red Purple Total


Sales $75,000 $60,000 $13,950 $1,650 $150,600
Material Costs $25,000 $20,000 $4,680 $550 $50,230
Direct Labor $10,000 $8,000 $1,800 $200 $20,000
Overhead @300% $30,000 $24,000 $5,400 $600 $60,000
Total Operating $10,000 $8,000 $2,070 $300 $20,370
Income
Return on Sales 13.6% 13.3% 14.8% 18.2% 13.5%
Exhibit 2 Direct Costs and Activity Cost Drivers

Blue Black Red Purple Total


Production Sales Volume 50,000 40,000 9,000 1,000 100,000
Unit Selling Price $1.50 $1.50 $1.55 $1.65
Materials-unit cost $0.50 $0.50 $0.52 $0.55
Direct labor hrs/unit 0.02 0.02 0.02 0.02 2,000
Machine hours/unit 0.1 0.1 0.1 0.1 10,000
Production runs 50 50 38 12 150
Setup time/run 4 1 6 4
Total setup time (hours) 200 50 228 48 526
Parts administration 1 1 1 1 4
Cost Driver Costs
Indirect labour cost $20,000
Fringe Benefit(50%) $8,000

Scheduling (50%) Production Run $14,000


Machines Setup(40%) Setup Time $11,200
Maintaining Records(10%) Parts Administration $2,800
Total Indirect Cost $28,000
Component of Fringe benefit
Direct Labor $20,000
Direct Labor Fringe $8,000
Computer system components $10,000
sceduling (80%) Production Run $8,000
Mantaning records(20%) Parts Administration $2,000

Machine Costs
Machinery $8,000
Maintance $4,000
Energy $2,000
Total operating Machine cost $14,000

Total Production Run $22,000


Total Setup Time $11,200
Total Parts Administrat $4,800
Cost Drivers Activity Cost Annual Driver Activity Cost
Production Runs $22,000.00 150 $146.67
Setup Time $11,200.00 526 $21.29
Parts Administration $4,800.00 4 $1,200.00
Support $14,000.00 10,000 $1.40
Direct Labour Fringe $8,000.00 2,000 $4.00
Cost Driver consumption for 50000 units
Blue Black Red Purple
$7,333.33 $7,333.33 $5,573.33 $1,760.00
$4,258.56 $1,064.64 $4,854.75 $1,022.05
$1,200.00 $1,200.00 $1,200.00 $1,200.00
$7,000.00 $5,600.00 $1,260.00 $140.00
$4,000.00 $3,200.00 $720.00 $80.00
Blue Black Red Purple
Sales $75,000.00 $60,000.00 $13,950.00 $1,650.00
Material Costs $25,000 $20,000 $4,680 $550
Direct Labor $10,000 $8,000 $1,800 $200
Production Runs $7,333 $7,333 $5,573 $1,760
Setup Time $4,259 $1,065 $4,855 $1,022
Parts Administration $1,200 $1,200 $1,200 $1,200
Support $7,000 $5,600 $1,260 $140
Direct Labour Fringe $4,000 $3,200 $720 $80
Total operating cost $58,791.89 $46,397.97 $20,088.09 $4,952.05
Total operating income $16,208.11 $13,602.03 -$6,138.09 -$3,302.05
Return on Sales 21.61% 22.67% -44.00% -200.12%

Cost / Unit $1.176 $1.160 $2.232 $4.952


Selling Price/Unit $1.500 $1.500 $1.550 $1.650
Total
$150,600
$50,230
$20,000
$22,000
$11,200
$4,800
$14,000
$8,000
$130,230.00
$20,370.00
13.53%

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