Destin Brass Products Co. Case Study

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Destin Brass Products Co. Case study
Cost Issues.
Vales: Several competitors could math our quality but none had tried to gain market share by cutting price and gross margins had been maintained.
Pumps: Our competitors’ sales prices are below our pump-cost calculation even when our manufactural process is better. Could not figure out how competitors making profit unless being subsidized by other products.
Flow Controllers: We increased price by 12.5% with no apparent effect on demand.
Peggy (controller) opinions are: 1) Material and labor cost are related to products produced. 2) Competitors marking different assumption about overhead costs. 3) Currently using traditional costing system-preparing financial reports and tax returns. 4) Introduced revised cost systems. 5) Proposed Activity based costing as initiated by Scott.

Since Destin is not seeing any noticeable competition in the FC market, price could easily be raised the $3 to produce the 35% profit margin budgeted for (Exhibit 3). In the valve market Destin only has one customer. To have valve unit costs produce the 35% gross profit margin, an increase in price of $10 will have to be made (Exhibit 3). This will have to be carefully considered prior to execution. With such a drastic price increase, the one customer may go elsewhere for valves. The company could also look to expand it's customer base for valves, increasing the numbers of production runs, and help increase profit margins. If Destin were to no longer produce valves, overhead costs for machine depreciation and maintenance would have to be absorbed by the remaining two product lines, ultimately making their unit costs higher and less profitable.
Destin may consider maximizing profit in the low competition FC market to higher then 35% to offset the less profitable valve market. To stay competitive in the pump market, Destin should look at…...

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