Case Report 3 Anagene PDF

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Anagene Case Homework The major problem with Anagene, Inc. is that their standard cost fluctuates way too much. Their standard cost per cartridge fluctuates because as a company in a fairly new industry, their volume of sales fluctuates. Anagene’s current standard costing system depends on the forecasted sales volume. When the sales volume varies from the forecasted one, the cost per product greatly varies due to the allocation of overhead and other costs. When the cost per product changes, the gross margin also changes, causing Anagene to have a confusing and disorganized profit representation. Therefore, Anagene’s current standard costing system fails to support the realistic representation of the company’s performance.

Anagene should calculate the standard cost not based on the forecasted sales volume, but on the practical capacity of resources being used to produce the products. Anagene should measure the resource capacity of its product line. This means Anagene needs to measure how many units can a resource possibly support in a set amount of time. Use 80% to 85% of the resource capacity as the practical capacity, then allocate the cost based on the amount of practical capacity each product consumes. This way, Anagene’s cost per cartridge would not fluctuate when its sales volume goes up or down. The correct standard costing system can also help Anagene to price its cartridges reasonably....