THE CLASSIC PEN

COMPANY
CASE STUDY
Group 5
Alvin Adrian (1806278642)
Hanifah Dina Zain (1806278794)
Jenny Kanprilla (1806250146)
 CASE BACKGROUND
1. Existing business: Produced 2 variant color of BLUE &
BLACK

2. Expand: Produced 2 new variant color of RED & PURPLE

3. The new variant color is sold at the premium price

4. All product is produced in a single factory and apply

semiautomated process

THE CLASSIC PEN 5. Change environment in the Classic Pen’s production process
COMPANY started when the red pens were introduced

6. Currently applies overhead on the basis of direct labor cost

(traditional costing)
 TRADITIONAL INCOME STATEMENT
OF THE CLASSIC PEN COMPANY
Blue Black Red Purple Total
Sales $75,000 $60,000 $13,950 $1,650 $150,600
Material costs 25,000 20,000 4,680 550 50,230
Direct Labor 10,000 8,000 1,800 200 20,000
Overhead @300% 30,000 24,000 5,400 600 60,000
Total operating income $10,000 $8,000 $2,070 $300 $20,370
Return on sales 13,3% 13,3% 14,8% 18,2% 13,5%
 DIRECT COST & POTENTIAL ACTIVITY COST
Blue BlackDRIVERS
Red Purple Total
Production sales
volume (no. of units) 50.000 40.000 9.000 1.000 100.000

Unit selling price $1,50 $1,50 $1,55 $1,65

Materials/unit cost $0,50 $0,50 $0,52 $0,55
Direct labor hr/unit 0,02 0,02 0,02 0,02 2000
Machine hour/unit 0,1 0,1 0,1 0,1 10,000
No. of production runs 50 50 38 12 150
Setup time/run (hours) 4 1 6 4
Total setup time (hours) 200 50 228 48 526
Number of products 1 1 1 1 4
ISSUES

HIGHER PRICE BUT

01
PROFITABILITY IS
The
DOWNnew RED & PURPLE pens
do seem more profitable than
BLUE & BLACK pens, but
overall profitability is down
MORE TIME TO
02
Required
PRODUCED more time to produce due
to stop production, empty the vats,
clean out all remnants of the
previous color, & then start the
production of the RED ink

INACCURATE OVERHEAD

03 a lot of over head expenses

COST
introduced with RED and PURPLE
pens, but cost is distributed equally
against all 4 products @ 300% of
the direct labor.
REQUIRED

Estimate the costs for the What are the managerial

four pen products using implications from the
an ABC approach. revised cost estimates?
 ESTIMATE THE COST

Current Costing System

Allocation of Indirect Cost Overhead Rate

All indirect costs were aggregated at
plant level and allocated to products
based upon the direct labor cost.
a. The overhead rate is 300% of
direct labor cost.
b. Before Red and Purple pens
were introduced, the overhead rate
was only 200% of direct labor cost.
 ESTIMATE THE COST

Current Costing System

Allocation of Indirect Cost Overhead Rate

All indirect costs were aggregated at
plant level and allocated to products
based upon the direct labor cost.
a. The overhead rate is 300% of
direct labor cost.
b. Before Red and Purple pens
were introduced, the overhead rate
was only 200% of direct labor cost.
 Six Category of Support Expenses &
Three categories of indirect cost remained: Allocation
 Machine
 Machine maintenance
 Energy
Classified as Support
 Aktivitas & Pemicu Biaya
• Tenaga Kerja Tidak Langsung; Manfaat Fasilitas; Sistem
Komputer; Mesin; Perawatan Mesin; Energi
Biaya

• Tenaga Kerja Tidak Langsung; Manfaat Fasilitas TKL; Biaya

Sistem Komputer; Biaya Mesin
Pool Biaya

• Set up Mesin; Biaya Produksi; Administrasi Suku Cadang

Aktivitas
(Pencatatan); Support Mesin; Manfaat Fasilitas TKL

• Hitam; Biru; Merah; Ungu

Produk
 Six Category of Support Expenses &
Expense Category Expense IndirectAllocation
labor
 50% of the indirect labor costs are caused by Production run
Indirect Labor $ 20,000
 40% of the indirect labor cost were caused by the physical change
Fringe Benefits $ 16,000 from one color to another called setup costs
 10% of the time was used to an activity Parts Administration
Computer System $ 10,000
(Book keeping)
Machinery $ 8,000
Computer Expenses
Maintenance $ 4,000  20% allocated to support activities (Parts admin.)

Energy $ 2,000  80% of computer resources were used to produce

batches and are closely related to handling of production
Total Expense $ 60,000 batches
 Alokasi Biaya ke Pul Biaya
Resources Cost Pools
DL Fringe Computer System Machine
Indirect labour
benefit Expenses Expenses
Indirect Labor $20,000
Fringe Benefits $8,000 (50% $8,000 (50% Fringe
Fringe benefit) Benefit)
Computer System $10,000

Machinery $8,000

$4,000
Maintenance

$2,000
Energy

Total Cost $28,000 $8,000 $10,000 $14,000

 Pengalokasian Pul Biaya ke Aktivitas
Tenaga Kerja Biaya Sistem Manfaat Fasilitas
Biaya Mesin
Tidak Langsung Komputer ke TKL

5 2
1
4

0
8

0
0
%
0
0

% %
% %

Administrasi
Set up Aktivitas Support Manfaat
Suku
Mesin Produksi Mesin Fasilitas TKL
Cadang
 Perhitungan Rate / Aktivitas

Jumlah
Aktivitas Pemicu Rate per
Aktivitas Total Biaya Pemicu
Biaya Aktivitas
Biaya
Aktivitas Produksi 22,000 Production runs 150 146.67
Set up Mesin 11,200 Total setup time 526 21.29
Administrasi Suku
4,800 Parts Administration 4 1200
Cadang
Support Mesin 14,000 Machine hours 10000 1.4
Manfaat Fasilitas TKL 8,000 Direct labour hours 2000 4
 Alokasi Biaya ke Unit

Activity cost per unit

Blue Black Red Purple Total
Aktivitas Produksi $7,333.33 $7,333.33 $5,573.33 $1,760 $22,000
Set up Mesin $4258.55 $1064.63 $4,854.70 $1,022.05 $11,200
Administrasi Suku
$1,200 $1,200 $1,200 $1,200 $4,800
Cadang
Support Mesin $7,000 $5,600 $1,260 $140 $14,000
Manfaat Fasilitas
$4,000 $3,200 $720 $80 $8,000
TKL
 Laporan Laba Rugi per Produk
ABC Income statement
Blue Black Red Purple Total
Sales $75,000 $60,000 $13,950 $1,650 $150,600
Material costs $25,000 $20,000 $4,680 $550 $50,230
Direct labour $10,000 $8,000 $8,000 $200 $20,000
Overhead
Production run $7333 $7333 $5573 $1760 $22,000
Set up $4259 $1064.63 $4,854.70 $1,022.05 $11,200
Parts Administration $1,200 $1,200 $1,200 $1,200 $4,800
Support $7,000 $5,600 $1,260 $140 $14,000
Direct labour fringe $4,000 $3,200 $720 $80 $8,000
Total operating cost $58,792 $46,398 $20,088 $4,952 $130,230
Total operating income $16,208 $13,602 -$6,138 -$3,302 $20,370
Return on sales 21.6% 22.6% -44% -200% 13.5%
Kesimpulan
Blue Black Red Purple
ABC
cost / unit
$1.17 $1.15 $2.23 $4.95
Harga Jual / unit $1.50 $1.50 $1.55 $1.65

Pena Merah dan Ungu

merupakan produk yang Terjadi kenaikan dari biaya
merugikan perusahaan. overhead yang signifikan dengan
adanya produk baru.
Pena Merah & Ungu harus dijual

03 dengan harga lebih tinggi.

Produk paling menguntungkan
04 yaitu Pena Hitam.
 Traditional Costing
Total Production 50.000 40.000 9.000 1.000

DM $ 0,50 $ 0,50 $ 0,52 $ 0,55

DL $ 0,20 $ 0,20 $ 0,20 $ 0,20

OH
$ 0,60 $ 0,60 $ 0,60 $ 0,60

Total Cost/ Unit

$ 1,30 $ 1,30 $ 1,32 $ 1,35
 MANAGERIAL IMPLICATIONS
 ROS dengan metode traditional costing dan ABC berbeda
ROS ABC 21.6% 22.6% -44% -200% 13.5%
ROS Traditional 13,3% 13,3% 14,8% 18,2% 13,5%

 Harga pena merah dan pena ungu lebih rendah dari biaya produksinya
 2 produk baru menghasilkan overhead yang tinggi
 Cost/ Unit ABC > Cost Unit Traditional
Blue Black Red Purple
Traditional $0,60 $0,60 $0,60 $0,60
Cost/ Unit
ABC
$1.17 $1.15 $2.23 $4.95
cost / unit
 NON FINANCIAL CONSIDERATION

- Kebutuhan pasar pena hitam dan biru lebih besar

- Menentukan pasar:

 Jika pena yang dihasilkan adalah pena yang sama, produksi dapat dilakukan dalam jumlah
besar

 Sesuai dengan nama perusahaan membuat pena klasik berdasarkan bentuk penanya
(customized)

 Membuat pena multicolor

 Menambah mesin baru

 Berinvestasi pada mesin yang lebih canggih untuk mempercepat produksi

 Automasi packing stage

 “Costing system yang benar akan membantu
pengambilan keputusan bukan hanya tentang harga
yang tepat untuk barang yang diproduksi namun
juga tentang investasi yang harus dipilih dan jenis
pasar yang harus dimasuki.”
THANK YOU