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Developing an Abc Model

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Classic Pen Company : Developing an ABC Model

Exhibit 1: Traditional 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 Labor | 10,000 | 80,000 | 1,800 | 200 | 92,000 | Overhead @300% | 30,000 | 24,000 | 5,400 | 600 | 60,000 | Total Operationg Income | $10,000 | $80,000 | $2,070 | $300 | $20,370 | Return on Sales | 13.3% | 13.3% | 14.8% | 18.2% | 13.50% |

Exhibit 2: Direct Cost and Activity Cost Drivers

| Blue | Black | Red | Purple | Total | Production Sales Volume | 50,000 | 40,000 | 9,000 | 1,000 | 100,000 | Unit Selling Price | $1.5 | $1.5 | $1.55 | $1.65 | | Material- unit cost | $0.5 | $0.5 | $0.52 | $0.55 | | Direct labor hours/unit | 0.02 | 0.02 | 0.02 | 0.02 | 2,000 | Machine hour/unit | 0.10 | 0.10 | 0.1 | 0.1 | 10,000.00 | Production runs | 50.00 | 50.00 | 38 | 12 | 150.00 | Setup time/run | 4 | 1 | 6 | 4 | | Total setup time (hours) | 200.00 | 50.00 | 228 | 48 | 526.00 | Parts administration | 1.00 | 1.00 | 1 | 1 | 4.00 |

QUESTION 1 Calculate the revised product cost for the four pens based on the activity info collection by Dempsey

Traditional Cost System | Blue | Black | Red

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