CLASSIC PEN COMPANY - Cost Accounting Case Study Analysis CLASSIC PEN COMPANY Developing an ABC Model Karthikeyan(IEMB MISB Bocconi Product Analysis

CLASSIC PEN COMPANY - Cost Accounting Case Study Analysis...

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CLASSIC PEN COMPANY - Developing an ABC Model Cost Accounting – Case Study Analysis - Karthikeyan ( IEMB, MISB Bocconi )
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Objectiv es Product Analysis ABC analysis Observation & Recommendatio ns
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Summary of the Case study Classic Pen was a low-cost producer of traditional Blue and Black pens Profit margins were over 20% of sales Five years earlier Red pens were introduced at 3% premium Recently Purple pens were introduced at 10% premium.
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Issues faced by Management Red and Purple pens seem more profitable, but overall margin is coming down Process for Red and Purple pens require more set up time A lot of time spent on scheduling and purchasing activities
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Costing system of Classic Pen All indirect costs were aggregated at plant level and allocated to products based upon the direct labor cost The overhead rate is 300% of direct labor cost Before Red and Purple pens were introduced, the overhead rate was only 200% of direct labor cost Traditiona l costing Method
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Traditional Costing Method
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