Accounting - Analysis

Accounting - Analysis

Shepparton Ltd Case Solution

Data

Standard Model

Enviro Model

Total

Forecast Sales (Units)

300,000

30,000

330,000

Selling price per unit

$20

$30

$50

Prime Costs per unit

$10

$12

$22

DLH per Unit

1

1

Current Method of Applying Overhead (Traditional Costing)

Gross Profit in Traditional Costing

Standard Model

Enviro Model

Total

Sales

$6,000,000

$900,000

$6,900,000

Less: Prime Cost

$3,000,000

$360,000

$3,360,000

Gross Profit

$3,000,000

$540,000

$3,540,000

Gross Profit Per Unit

$10

$18

$10.73

Gross Profit Margin

0.5

0.6

0.513043478

Activity Cost Based

Allocation of Activity Cost

Head

Total Cost

Cost Driver

Standard Model

Enviro Model

Machining Set Ups

$480,000

Number of Set ups

$160,000

$320,000

Fabric Cutter

$190,000

Machine Hours

$142,500

$47,500

Assembly

$400,000

Labour Hours

$320,000

$80,000

Packing

$250,000

Number of Orders

$166,667

$83,333

Total

$1,320,000

$789,167

$530,833

Gross Profit in ABC Costing

Standard Model

Enviro Model

Total

Sales

$6,000,000

$900,000

$6,900,000

Less: Cost (Prime Cost + Activity Cost)

$3,789,167

$890,833.33

$4,680,000.00

Gross Profit

$2,210,833

$9,166.67

$2,220,000.00

Gross Profit Per Unit

$7.37

$0.31

$6.73

Gross Profit Margin

0.368472222

0.010185185

0.32173913

Brief Report on Findings

In this case study, gross profit is calculated on both current methods which is merely tradition ...