CLASSIC PEN

1. Identify Overhead Costs 2. Identify Cost Drivers 3. Calculate AR =Cost/Driver

Cost Driver AR
Indirect Labor 20000
50% 10000 Prod. Run 150 66.67 per run
40% 8000 Setup Hrs 526 15.21 per srtup hr
10% 2000 Batches 150 13.33 per batch

Fringe Benefits 16000 DL + InDL 40000 0.40 per $ of DL+InDL

Computer System 10000

80% 8000 Prod. Run 150 53.3 per run
20% 2000 Prod. Line 4 500 per line

Machinery, Main., Energy 14000 Mhrs Used 10000 1.4 per mhr

4. Allocate Overheads = AR x Drivers Consumed

Driver Blue Driver Black Driver Red Driver Purple
Indirect Labor Used Used Used Used
50% 50 3333.3 50 3333.3 38 2533.3 12 800.0
40% 200 3041.8 50 760.5 228 3467.7 48 730.0
10% 50 666.7 50 666.7 38 506.7 12 160.0
Computer System
80% 50 2666.7 50 2666.7 38 2026.7 12 640.0
20% 1 500.0 1 500.0 1 500.0 1 500.0
Machinery, Main., Energy 5000 7000.0 4000 5600.0 900 1260.0 100 140.0
Fringe Benefits 6816.7 5104.2 3323.1 756.0
Total OH Allocated 24025 18631 13617 3726 60000

Fringe Benefits Calculations Blue Black Red Purple

Indirect Labor 7041.8 4760.5 6507.7 1690.0
Direct Labor 10000.0 8000.0 1800.0 200.0
Total 17041.8 12760.5 8307.7 1890.0 40000
Fringe Benefit (40% of total) 6816.7 5104.2 3323.1 756.0 16000

New Income Statement Blue Black Red Purple

Sales 75000 60000 13950 1650
Less:
DM 25000 20000 4680 550
DL 10000 8000 1800 200
OH 24025 18631 13617 3726
Operating Income 15975 13369 -6147 -2826

ASSUME ALL OH EXCEPT MACHINERY, MAINTENANCE AND ENERGY ARE FIXED (TOTAL FC = 46000)
BREAK EVEN POINT ANALYSIS (Allocated FC)
Blue Black Red Purple
Total Units Sold 50000 40000 9000 1000
SP per unit 1.50 1.50 1.55 1.65 BEP Point = Total FC/CM p.u.
Variable Cost
Direct Material 0.50 0.50 0.52 0.55
Direct Labor 0.20 0.20 0.20 0.20 DL Per Hr 10
Mch., Maint., Energy 0.14 0.14 0.14 0.14
Contribution Margin 0.66 0.66 0.69 0.76
Allocated FC 17025 13031 12357 3586 46000 Total FC
BEP units 25796 19744 17909 4718

BREAK EVEN POINT ANALYSIS (No Allocation)

Blue Black Red Purple
SP per unit 1.50 1.50 1.55 1.65
Variable Cost
Direct Material 0.50 0.50 0.52 0.55
Direct Labor 0.20 0.20 0.20 0.20
Mch., Maint., Energy 0.14 0.14 0.14 0.14
Contribution Margin 0.66 0.66 0.69 0.76
 CM Prod. Mix CM of Mix
Blue 0.66 50000 33000.00 Total FC 46000.00
Black 0.66 40000 26400.00
Red 0.69 9000 6210.00 BEP Mix = Total FC/CM of Mix 0.6931
Purple 0.76 1000 760.00
66370