Destin Brass Products Co. Essay

The estimated legal injurys deliberate using the activeness-based compriseing method is very antithetic from the existing banner building block cost and the revise unit be. endanger 3 uses the traditional cost allocation constitution, which allocates all costs based on measures of volume. In the standard unit costs, Destin Brass uses educate labor as the provided cost driver, which r atomic number 18ly meets the cause-effect standard wanted in cost allocation. Exhibit 4 is similar to exhibit 3, however so unrivalledr, 4 uses materials and machine hours as the cost driver instead of just direct labor. The new costs be calculated by using the ABC system, which allocates costs that ar caused by non-volume-based cost drivers. After recognizing the command processing overhead time activities, costs of overhead resources used for the activities are allocated to the activities using cost drivers.Then pooled costs of each military action are allocated to results, using the cost drivers. It takes one oversize overhead cost pool and breaks it down into some(prenominal) pools, which for this company are receiving and materials handling, machine usage and maintenance, pugilism and shipping, and engineering. These film a cause-effect relationship with activities and resources that are used. So contrary exhibit 3 and 4, the new system breaks down the overhead costs a push-down stack much. The new estimated costs are more hi-fi because the amount allocated to each of the overhead activities for each product is more detailed. It shows the percentage of how much each activity is performed on each product.All 3 products unit costs in the new system are different from exhibit 3 and 4. Unit legal injury for valves has a slight change compare to the standard unit expenditure, but for pumps and liquify ascendances, there is a dramatic change.Destin Brass are well on a disdain floor their 35% gross margin goal for pumps, and question how other com panies can allot their pumps for such a low price. They thought the unit costs for pumps is $63.12, when in fact, the more accurate system shows that its only $48.81, $14.31 less than the standard unit cost. This inaccuracy is the reason why Destin Brass is having trouble staying competitive with their price on pumps while other companies are able to sell it for a lower berth price.The flow controllers have never been a problem for Destin Brass. It confabulatemed to them that they had no competition in that market. Even after raising the prices by 12.5%, take did not decrease. This is because the more accurate unit cost for flow controllers is actually $100.48, and not $56.50, $43.98 more than what they thought. They have been marketing their flow controller at $97.07 each, which is below the unit cost, and that is why no other companies are able to compete in that market.I compute Destin Brass should definitely adjust their selling price for all 3 products. For valves, $58.1 6 should be their new target-selling price if they want to keep the 35% GM goal, but I think they should make the actual selling price to be a little lower than that. That way they can stay/be more competitive in the valves market while having a GM% that is slightly lower, but lock in tight-fitting to the goal.Selling price for pumps depart have to be lowered for them to become competitive in the pumps market, un similar before. $75.09 would be the price they want to sell it at if they want the 35% GM, but the selling could still be slightly lower then that, allowing them to be competitive while still very closelipped to their goal.Flow controller prices will have to be higher if they want to make a make headway from this product. Right now they are making a loss of 4% for each flow controller they sell. If they want to reach the 35% GM mark, they will have to up their cost from $97.07 to $154.58. Just like pumps and valves, price could be a little lower than that, and of cours e for the same reasons. Yes, this means they will go from having no competition to many competitions in the flow controller market now, but at least(prenominal) they wont be making a loss every time they sell a flow controller.In the following month, assuming quantities produced and sold, activities, and costs were all at standard, the return reported down the stairs the new system would be $540,260.00, and under the parade system would be $539,180.00. There is only a difference of $1,080. Destin Brass will not see any majordifference in profit in the short run in this guinea pig its over a period of one month. But in the long run, they will definitely see major changes in their profits.