Classic Pen

In: Business and Management

Submitted By getloose
Words 251
Pages 2
The problem of this case is that, as in the financial report for the most fiscal recent year, the overall profitability of Classic Pen company goes down despite of the introducing of its new two products, RED and PURPLE pens, which show more profitable than the traditional BLUE and BLACK product. These two new products are expected to be sold at premium selling prices about 3% and 10% respectively in the order and the new line, particularly PURPLE, in fact, showed much higher margin over the others. The problem was addressed is that the production technology required for the RED and the PURPLE pens demand specifications. Especially, making the RED color needs more changeovers, which leads to waste lots of time on purchasing and scheduling and management activities as well as money. In order to come up with a management decision under this situation, the controller is considering of using the activity-based costing (ACB) system to create the financial statement instead of using the traditional, job order costing system. Unlike the job order costing which maintains records and allocate cost on top of direct labor, ABC focuses on activities. Therefore, it leads more cost pools to be used to assign overhead costs to products. Four cost drivers which directly related to activity cost pools to assign overhead costs could be used for this case. As a result, costs are assigned more directly on the basis of the cost drivers used to produce each product. II. Strengths, Weaknesses, Opportunities and…...

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