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CMA Assignment Group Number 1

The document outlines a group assignment for CMA involving product pricing and cost allocation decisions for Camelback Communications. It discusses the implications of maintaining or modifying the existing cost system, including the impact on product profitability and decisions to drop products based on their mark-on percentages. The analysis indicates that a more differentiated cost system could lead to better pricing strategies and optimal product decisions.

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pushkal16
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31 views6 pages

CMA Assignment Group Number 1

The document outlines a group assignment for CMA involving product pricing and cost allocation decisions for Camelback Communications. It discusses the implications of maintaining or modifying the existing cost system, including the impact on product profitability and decisions to drop products based on their mark-on percentages. The analysis indicates that a more differentiated cost system could lead to better pricing strategies and optimal product decisions.

Uploaded by

pushkal16
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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CMA Group assignment

1- Camelback
Communications
Group Number 1

Roll Number Name

EPGP/16/025 HARMANPREET KAUR

EPGP/16/036 MANASWINI DIAN

EPGP/16/044 NAMRATA K SHERKHANE

EPGP/16/061 PUSHKAL DUBEY

EPGP/16/094 SWATI SUCHITA KHESS

EPGP/16/095 TANMAY PAREEK

EPGP/16/101 VINOD R N
1. What will CCI now have to charge for each product to make a 40% mark-on? If CCI
maintains its rule about dropping products with a mark-on below 25%, which additional
products, if any, will it drop?

Heading B C D

Material $5 $10 $5

Labour $5 $15 $10

Allocated $10.36 $31.08 $20.72


cost

Standard cost $20.36 $56.08 $35.72

Selling price $20.36+$8.144 = $56.08+$22.432 = $35.72+$14.288


$28.504 $78.512 =$50.008

Since Product C’s Mark-on % is 6.10% , less than 25%. Drop Product C
2. If you decide to drop additional product(s), recalculate the allocation rate per hour for
the new product mix. Repeat Question 1. Since the markup is greater than 25 % for each
product so no one will be removed as per the rule and calculation remains the same.

D will be dropped as the markon % is less than 25%.


B will also be dropped as the mark-on % is negative.

3. What is going on?

Existing cost system was a simple system that used a single burden/allocation rate for all
overhead cost. It was determined by adding together variable cost and fixed overhead cost and
dividing by no. of direct labor hours. This system resulted in a difference in selling price because
fixed overhead cost is fixed irrespective of labor hours and variable overhead cost is different for
different products.

All the above lead to non-optimal decisions, which does not take into account profitable products.

4 . What would happen if the firm kept its existing cost system but differentiated between
variable and fixed cost and decided to maximize contribution?

As highlighted in Sr. no. 3 above, the approach in question would lead to better decisions for
manufacturing and dropping the products based on profitability of products.
5.⁠ ⁠What would happen if the firm modified its cost system so that all variable costs were
traced to the product accurately but fixed costs were allocated using the existing system?

This approach would provide true variable costs associated with each product and fixed cost
clarity leading to better product pricing.

Product A B C D

Material 15 5 10 5

Labour 30 5 15 10

Variable Overhead 15 7.5 5 7.5

Allocated cost 22.50 3.75 11.25 7.50

Standard Cost 82.50 21.25 41.25 30.00

Industry selling price 98 38.5 59.5 49

Profit 15.50 17.25 18.25 19.00

Markup % 18.78787879 81.17647059 44.24242424 63.33333333

6. What would happen if the firm modified its cost system so that it contained two cost
pools, one containing the overhead costs associated with Products A and B and the other the
overhead costs associated with Products C and D, and then allocated these overhead pools
on the basis of direct labor hours?

Creating two cost pools will lead to more accurate allocation of overhead costs based product
characteristics.
Product A’s mark-on % is less than 25%, hence it can be removed.

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