Destin Brass Case

Our group has prepared the cost analysis based on activities related to the manufacturing of the three products for the Destin Brass Products Company. We provided table three to illustrate the total unit costs based on activity based costing. The calculations can be viewed on tables one and two.

The different product costs in this case were established by the use of traditional costing systems versus the use of the more modern method of activity-based costing (ABC). Our calculated estimates are significantly different than those illustrated in exhibits three and four. Based on our calculated estimates using activity based costing, we found that there are large disparities between our method and the previous methods used by the Destin Brass. The Company was puzzled that they can raise the price of flow controllers without flinch from their customers, however, they were currently basing their pricing strategy on a unit cost of $47.96 versus our calculations at $108.26. By selling the product at the current target price of $86.96, they are losing money; which is one explanation for dwindling profits and a good explanation why sales haven’t been affected by increasing prices.

On the other hand, Destin Brass Products feel that the competitors selling pumps are either being subsidized or are just ignorant of their costs. On the contrary, Destin was using a unit cost of $58.95, but a more realistic and appropriate unit cost, based on ABC, is $51.79. With this invaluable information, Destin can affectively compete in the market and still maintain their target margin.

Specialized valves are the core competency of Destin Brass and they also have a contract with the water filtration company for this product. Our calculations result in an $11.36 price decrease per unit over that which is currently being applied. Although the company has been pleased with the sales of valves and the resulting margins, the new costing system should give