Sippican Case - 1560 Words

1 SIPPICAN CORPORATION CASE ANALYSYS 20229 Cost Management System 2 Executive Summary ïÆ'Ëœ Company Overview ïÆ'Ëœ Accounting method ïÆ'Ëœ Production process ïÆ'Ëœ Activities performed ïÆ'Ëœ Q1. Should Sippican use a contribution margin approach? Explanation ïÆ'Ëœ Q2. Capacity cost rates for resources ïÆ'Ëœ Q3. ïÆ'Ëœ a. Revised costs and profits ïÆ'Ëœ b. Product costs and profitability analysis with the new allocation method. Cause of the shifts in values. ïÆ'Ëœ Q4. What actions should the management take to improve Sippican’s profitability? 3 Company overview †¢ Sippican is a company manufacturing hydraulic control devices: valves, pumps and flow controllers †¢ Recent trends (March 2006) ï  ¶ Valves: margin remained at standard 35% ï  ¶ Pumps:†¦show more content†¦DM units 4 5 10 DM cost 16 20 22 DL h/unit 0,38 0,50 0,4 Machine h/unit 0,5 0,5 0,3 Set up h/unit 5 6 12 Production Units Machine hrs (run time) Production runs Setup hrs(labormachine) #of shipments Hrs engineering work Valves Pumps Flow Contr. 7500 12500 4000 3750 6250 1200 20 100 225 100 600 2700 40 100 200 60 240 600 Total 24000 11200 345 3400 340 900 Actual quantities per activity: Activities Set up hrs Machine hrs Receiving control hrs Packaging Shipment hrs Engeneering hrs Pr Units x DLhrs Mhrs+set up hrs(machine) 75’/60) x production runs (50’/60’) x #ship + (8’/60’) x pr. Units Eng hrs Valves 2850 3850 25 1.033,33 60 Pumps 6250 6850 125 1750 240 Flow contr 1600 3900 281,25 700 600 Total hrs used 10700 14600 431,25 3483,33 900 Q3 Valves Pumps Flow Controllers Tot $592.500,0 $875.000,0 $380.000,0 $1.847.500,0 $212.625,0 $453.125,0 $140.000,0Show MoreRelatedSippican Case Study Scm1385 Words   |  6 Pagesthe number of units produced per production run- it is 375 for valves and 18 for flow controllers per production run. This shows the reason for high overheads cost too. Hence it calls for checking the cost allocation system of the company. Since Sippican produces three different products which comprise of different components, processes for all three need to be customised and refined to bring in any kind of standards. Variations in batch size owing to the machining constraints etc. are brought inRead MoreSippican Corp1240 Words   |  5 Pagesï » ¿Sippican Corporation Sippican Corporation Questions: 1. Given some of the apparent problems with Sippican’s cost system, should executives abandon overhead assignment to products entirely and adopt a contribution margin approach in which manufacturing overhead is treated as a period expense? Why or why not? Answer: Consider Sippican is a manufacturer company with multiple products, using simple cost accounting system that directly allocate factory overhead to unit of product entirely throughRead MoreEssay on Sippican Corporation1698 Words   |  7 Pagesproducts shows how profitable the products are after deducting all cost. However, it is important to find the appropriate method of overhead cost allocation. In Sippican’s case the traditional accounting method is used, which does not reflect the real resource usage of the different product lines. The correct method in this case would be to apply the time-driven ABC approach for cost allocation. Such method apart from showing the actual profitability after all cost deductions also depicts the differencesRead MoreCost and Flow Controllers2130 Words   |  9 PagesThe Sippican Corporation Case Study (A) Management Summary Sippican Corporation - a supplier of valves, pumps, and flow controllers to manufacturers of water purification equipm ent – faced concerns due to the fact that its competitors have been reducing the price of pumps, which was a major product line. According to Sippican’s cost accounting system further decrease in the price of pumps would not be acceptable as because of the past price reductions the margin on pumps have already declined fromRead MoreAssignment Ch05 Essay2746 Words   |  11 Pagesdifference does your cost assignment have on reported product costs and profitability? What causes any shifts in cost and profitability? Answer: (d) Could this approach be extended to service companies and to companies much larger and more complex than Sippican? What would be the barriers and difficulties with implementing time-driven ABC in practice? Answer: (e) On the basis of the revised cost and profitability estimates, what actions should Sippican’s management team take to improve the company’s profitability