Problem Statement· To analyse the product costing system and its effectiveness Quantitative Analysis· From the Exhibit 1 we can see that overhead cost of indirect labour and computer has been divided into two activities performed.
This gives a more clear division cost then bundling these items in one category. In the allocation of cost fringe benefits has not been included, 40% premium was included on labour cost which indirectly reduced many of cost items and would have given a better understanding of cost drivers to the company· Exhibit 2 provides the information regarding cost per unit for various cost drivers.· From Exhibit 3 we can get the information of unit product cost used by ABC costing for every product category. This method is very effective as it charges actual indirect cost which is more effective. · In the Exhibit 4 we have made a new income statement based on new ABC overhead allocation. Contradicting to the earlier income statement which was made by Ms. Dempsey’s where purple and RED pens were actually did not generate any operating income and was operating loss · In the Exhibit 5 revenue from each product is shown.
PURPLE and RED consume the most amount of resources to produce but have the lowest revenue share in the overall share. The total revenue from both of them is only 10%
