ABC by Carsten BerkauProf. Dr. Carsten Berkau page: 6 - Controlling - CPUT.pp t 11..2288 CPUT -...
Transcript of ABC by Carsten BerkauProf. Dr. Carsten Berkau page: 6 - Controlling - CPUT.pp t 11..2288 CPUT -...
page: 1Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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ABCABC
by Carsten Berkauby Carsten Berkau
page: 2Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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ControllingControlling
FH OsnabrückFH Osnabrück
page: 3Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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page: 4Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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OsnabrückOsnabrück
page: 5Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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(1)(1) FH Osnabrück (www.fhFH Osnabrück (www.fh--osnabrueck.de)osnabrueck.de)
(2) Controlling Department(2) Controlling Department
(3) Teaching Controlling(3) Teaching Controlling
(4) EDP(4) EDP
(4.1) Case Study(4.1) Case Study
(4.2) SAP System R/3(4.2) SAP System R/3
(4.3) SAP System BW(4.3) SAP System BW
(4.4) Planspiel(4.4) Planspiel
page: 6Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Struktur des BachelorstudiengangsStruktur des Bachelorstudiengangs
Controlling – Grundlagen des Controlling und der Kosten- und Leistungsrechnung
Rechnungswesen/Accounting – (IFRSs und HGB)
Rechnungswesen 1 - Propädeutikum
M1: Strategisches und Projektcontrolling
BACHELOR
M2: Kostencontrolling und Budgetierung
M3: Reporting in Einzel-U. und Konzernen
Master CFO: Prozess- und Projekt-Ctrl., Strat. Ctrl. mit SEM, Corporate Finance, Financial Management and Accounting, Risk Management, Financial Control mit BW
MASTER
page: 7Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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ControllingControlling--WebsiteWebsite
page: 8Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Becoming a CFO (Becoming a CFO (Controlling&FinanceControlling&Finance in in OsnabrückOsnabrück) ...) ...
page: 9Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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CFOCFO--MasterMaster
page: 10Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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(1)(1) FH Osnabrück (www.fhFH Osnabrück (www.fh--osnabrueck.de)osnabrueck.de)
(2) Controlling Department(2) Controlling Department
(3) Teaching Controlling(3) Teaching Controlling
(4) EDP(4) EDP
(4.1) Case Study(4.1) Case Study
(4.2) SAP System R/3(4.2) SAP System R/3
(4.3) SAP System BW(4.3) SAP System BW
(4.4) Planspiel(4.4) Planspiel
page: 11Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Cost Accounting SystemCost Accounting System
Berkau, C.: Activity Based Management. Part 2: ABC-Costing. 2nd edition.
Enschede 2001, pg. 13
Cost Element Accounting
Direct Costs Overheads
Cost Center Accounting
CCe XXX
prop. fixed
CCe YYY
prop. fixed
Calculation
Unit costs
ProfitabilityAnalysis
Contribution margin
Profit
Financial Accounting
Rate, Variance
G/L Accounts
page: 12Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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SAP IntroductionSAP Introduction
Login and FB50Login and FB50
page: 13Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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ContentsContents
- Activity based costing vs. traditional ManAcc
- Level of ABC costing
- Business Process Modelling (BPM)
- German prozesskostenrechnung
- Software solutions
- Case Studies
page: 14Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Part (12): Activity Based CostingPart (12): Activity Based Costing
(ABC(ABC--Costing)Costing)
page: 15Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Business Example INSTEEL INDUSTRIESBusiness Example INSTEEL INDUSTRIES
INSTEEL INDUSTRIES manufactures concrete reinforcing steel, industrialwire, and bulk nails. The company implemented an ABC system in its manufacturing plant in Andrews, South Carolina, and immediately began using ABC data to make strategic and operating decisions.
In terms of strategic decisions INSTEEL dropped some unprofitable products, rises prices on others, and in come cases even discontinued relationships with unprofitable customers. INSTEEL realized that simply discontinuing products and customers does not improve profits. The company needed to either redeploy its freed-up capacity to increase sales or to reduce costs. INSTEEL used its ABC system to identify which new business opportunities to pursue.
In terms of operational improvements the ABC system revealed that its 20 most expensive activities consumed 87% of the plant’s $21,400,000 in cost. Almost $4,900,000 was being consumed by non-value-added activities. Teams were formed to reduce scrap costs, material handling and freight costs, and maintenance costs. Within on year scrap and maintenance costs had been cut by $1,800,000 and freight costs by $550,000. Overall, non value-added activity costs dropped from 23% to 17% of total costs.
page: 16Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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ABC SystemABC System
Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect (1) capacity and therefore (2) fixed as well as (3) variable costs.
An ABC system is ordinary used as a supplement to, rather than a replacement for, a company’s usual costing system.
page: 17Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Further ConsiderationFurther Consideration
Traditional absorption costing is designed to provide data for external financial reports. In contrast, ABC is designed to be used for internal decision making.
MAIN DIFFERENCES:(1) In ABC nonmanufacturing as well as manufacturing costs may be assigned to products, but only by a cause-and-effect basis
(2) Some manufacturing costs may be excluded from product costs (see example CLASSIC BRASS coming up).
(3) Numerous overhead cost pools are used, each of which is allocated to products and other cost objects using its own unique measure of activity.
page: 18Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Conditions changed …Conditions changed …
In most of the 20th century cost system design were simple. Only few cost pools (departments) were in use. Overheads were allocated on a labor-hour or machine-hour bases. Labor was a common overhead allocation base because it represented a large component of product costs.
Now, these conditions have changed. As a percentage of total cost, direct labor, declined and overhead increased. By using more machines direct labor got replaced by depreciation, from the view of view of cost elements. Companies produce a huge variety of products. Managing and sustaining this product diversity requires to invest in more overhead resources.
This requires an ABC system to not distort product cost by too simple cost allocations.
page: 19Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Some DefinitionsSome Definitions
DEFINITIONS:(1) Activity
An activity is any event that causes the consumption of overheadresources.
(2) Activity cost poolAn activity cost pool is a “bucket” in which costs are accumulated thatrelate to a single activity measure in the ABC system.
(3) Activity measureAn Activity measure is an allocation bases. The term cost driver is alsoin use. There are (a) transaction drivers and (b) duration drivers.
(4) Levels of activityIn an ABC system there are 5 levels of activities related to the reasoncausing the activity occurrence: (I) unit-level activities, (II) batch-levelactivities, (III) product-level activities, (IV) customer-level activities, and(V) organization-sustaining activities
page: 20Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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1.1.5656CPUT - 6.08.2010
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ABC ModelABC Model
Cost Objects
Activities
Consumption of resources
Cost
page: 21Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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CLASSIC BRASS Case StudyCLASSIC BRASS Case Study
CLASSIC BRASS is a production firm. The company produces 2 products lines for parts for luxury yachts: (1) standard stanchions and (2) custom compass housings.
During 20X5 the business made a loss, see I/S provided below for fiscal year 20X5:
Item [$] [$]
Sales 3.200.000,00
less: Cost of goods sold
Direct materials 975.000,00
Direct labor 351.250,00
Manufacturing overhead 1.000.000,00
(2.326.250,00)
Gross margin 873.750,00
less: Shipping and admin expenses
Shipping expenses 65.000,00
Marketing expenses 300.000,00
General admin expenses 510.000,00
(875.000,00)
Net operating income (1.250,00)
CLASSIC BRASS INCOME STATEMENT for 20X5
page: 22Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Steps for Implementing ABCSteps for Implementing ABC
STEPS:(1) Define activities, activity cost pools, and activity measures
(2) Assign overhead costs to activity cost pools
(3) Calculate activity rates
(4) Assign overhead costs to cost objects using the activity rates and activity measures
(5) Prepare management reports
page: 23Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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1.1.5959CPUT - 6.08.2010
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Cost Flow in CLASSIC BRASS ABC SystemCost Flow in CLASSIC BRASS ABC System
Direct
materials
Direct
labor
Shipping
cost
traced traced traced
Customer
orders
320,000.00
Product
design
252,000.00
Order
size
380,000.00
Customer
relations
367,500.00
Other
490,500.00
320.00
per order
630.00
per design
19.00
per MH
1,470.00
per customer
unallocatedCost objects:
products, customer orders, customers
Overhead cost
(manufacturing and non-manufacturing)
1,810,000.00
page: 24Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Activities identifiedActivities identified
CLASSIC BRASS identified the activities below. Note, there is a remaining cost pool.
For ABC costing start with less activities to reduce complexity and effort to gather data!
Acitivity cost pool Activity measure
Customer orders Number of customer orders
Product design Number of product designs
Order size Machine-hous
Customer relations Number of active customers
Other Not applicable
ACTIVITY COST POOLS
page: 25Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Steps for Implementing ABCSteps for Implementing ABC
STEPS:(1) Define activities, activity cost pools, and activity measures
(2) Assign overhead costs to activity cost pools
(3) Calculate activity rates
(4) Assign overhead costs to cost objects using the activity rates and activity measures
(5) Prepare management reports
page: 26Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Annual Overhead Costs to Cost PoolsAnnual Overhead Costs to Cost Pools
The ABC team at CLASSIC BRASS ran interviews with the departmental responsibles. No direct labor, direct materials or shipping expenses were assigned to cost pools.
Item [$] [$]
Production department
Indirect factory wages 500.000,00
Factory equipment depreciation 300.000,00
Factory utilities 120.000,00
Factory building lease 80.000,00
1.000.000,00
General administrative department
Administrative wages and salaries 400.000,00
Office equipment depreciation 50.000,00
Administrative building lease 60.000,00
510.000,00
Marketing department
Marketing wages and salaries 250.000,00
Selling expenses 50.000,00
300.000,00
Total overhead cost 1.810.000,00
CLASSIC BRASS OVERHEADS for 20X5
page: 27Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Results of Interviews (8Results of Interviews (8--4)4)
Customer
orders
Product
design Order size
Customer
relations Other totals
Production department
Indirect factory wages 25% 40% 20% 10% 5% 100%
Factory equipment depreciation 20% 0% 60% 0% 20% 100%
Factory utilities 0% 10% 50% 0% 40% 100%
Factory building lease 0% 0% 0% 0% 100% 100%
General Administrative department
Administrative wages and salaries 15% 5% 10% 30% 40% 100%
Office equipment depreciation 30% 0% 0% 25% 45% 100%
Administrative building lease 0% 0% 0% 0% 100% 100%
Marketing department
Marketing wages and salaries 22% 8% 0% 60% 10% 100%
Selling expenses 10% 0% 0% 70% 20% 100%
Activity Cost Pools
page: 28Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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First Stage Allocations (8First Stage Allocations (8--5)5)
Customer orders
Product
design
Order
size
Customer
relations Other totals
Production department
Indirect factory wages 125.000,00 200.000,00 100.000,00 50.000,00 25.000,00 500.000,00
Factory equipment depreciation 60.000,00 0,00 180.000,00 0,00 60.000,00 300.000,00
Factory utilities 0,00 12.000,00 60.000,00 0,00 48.000,00 120.000,00
Factory building lease 0,00 0,00 0,00 0,00 80.000,00 80.000,00
General Administrative department
Administrative wages and salaries 60.000,00 20.000,00 40.000,00 120.000,00 160.000,00 400.000,00
Office equipment depreciation 15.000,00 0,00 0,00 12.500,00 22.500,00 50.000,00
Administrative building lease 0,00 0,00 0,00 0,00 60.000,00 60.000,00
Marketing department
Marketing wages and salaries 55.000,00 20.000,00 0,00 150.000,00 25.000,00 250.000,00
Selling expenses 5.000,00 0,00 0,00 35.000,00 10.000,00 50.000,00
Total 320.000,00 252.000,00 380.000,00 367.500,00 490.500,00 1.810.000,00
Activity Cost Pools
page: 29Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Steps for Implementing ABCSteps for Implementing ABC
STEPS:(1) Define activities, activity cost pools, and activity measures
(2) Assign overhead costs to activity cost pools
(3) Calculate activity rates
(4) Assign overhead costs to cost objects using the activity rates and activity measures
(5) Prepare management reports
page: 30Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Computation of Activity Rates (8Computation of Activity Rates (8--6)6)
Activity cost pools
(a)
Total cost
Customer orders 320.000,00 1000 orders 320 per order
Product design 252.000,00 400 designs 630 per design
Order size 380.000,00 20000 MHs 19 per MH
Customer relations 367.500,00 250 customers 1470 per customer
Other 490.500,00
(b)
Total activity
(a) / (b)
Activity rate
Not applicable Not applicable
page: 31Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Steps for Implementing ABCSteps for Implementing ABC
STEPS:(1) Define activities, activity cost pools, and activity measures
(2) Assign overhead costs to activity cost pools
(3) Calculate activity rates
(4) Assign overhead costs to cost objects using the activity rates and activity measures
(5) Prepare management reports
page: 32Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Product DataProduct Data
STANDARD STANCHIONS:(1) This product line does not require any new design resources
(2) 30,000 units were ordered during the year, comprising 600 separate orders
(3) Each stanchion requires 35 min of machine time for a total of 17,500 machine hours.
CUSTOM COMPASS HOUSING(1) This is a custom product that requires new design resources
(2) There were 400 orders for custom compass housings. Orders for this product are paced separately from orders for standard stanchions.
(3) There were 400 custom designs prepared. One custom design was prepared for each order
(4) Since some orders were for more than one unit, a total of 1,250 custom compass housings were produced during the period. A custom compass housing requires an average of 2 machine hours (MHs) for a total of 2,500 MHs.
page: 33Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Assigning Overhead Costs to Products (8Assigning Overhead Costs to Products (8--8)8)
Overhead cost for the standard stanchions
Activity cost pools
(a) ∙ (b)
ABC cost
Customer orders 320 per order 600 orders 192.000,00
Product design 630 per design 0 design -
Order size 19 per MH 17.500 MH 332.500,00
Total 524.500,00
Overhead cost for custom compass housing
Activity cost pools
(a) ∙ (b)
ABC cost
Customer orders 320 per order 400 orders 128.000,00
Product design 630 per design 400 design 252.000,00
Order size 19 per MH 2500 MH 47.500,00
Total 427.500,00
(a)
Activity rate
(b)
Activity
(a)
Activity rate
(b)
Activity
page: 34Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
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Customer DataCustomer Data
WINDWARDS YACHTS(1) The company placed a total of 3 orders.
(a) Two orders were for 150 standard stanchions per order, (b) one order was for a single custom compass housing unit.
(2) A total of 177 machine hours were used to fulfill the tree customer orders.(a) The 300 standard stanchions required 175 machine-hours. (b) The custom compass housing required 2 machine-hours.
(3) WINDWARDS YACHTS in one of 250 customers served by CLASSIC BRASS.
page: 35Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
- Controlling -
CPUT.ppt
1.1.7171CPUT - 6.08.2010
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Assigning Overhead Costs to Customers (8Assigning Overhead Costs to Customers (8--9)9)
Activity cost pools
(a) ∙ (b)
ABC cost
Customer orders 320 per order 3 orders 960,00
Product design 630 per design 1 designs 630,00
Order size 19 per MH 177 MHs 3.363,00
Customer relations 1.470 per customer 1 customer 1.470,00
Total OH assigned to customer 6.423,00
(a)
Activity rate
(b)
Activity
Overhead cost for WINDWARD YACHTS
page: 36Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
- Controlling -
CPUT.ppt
1.1.7272CPUT - 6.08.2010
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Steps for Implementing ABCSteps for Implementing ABC
STEPS:(1) Define activities, activity cost pools, and activity measures
(2) Assign overhead costs to activity cost pools
(3) Calculate activity rates
(4) Assign overhead costs to cost objects using the activity rates and activity measures
(5) Prepare management reports
page: 37Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
- Controlling -
CPUT.ppt
1.1.7373CPUT - 6.08.2010
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Direct Product Cost DataDirect Product Cost Data
STANDARD STANCHION(1) Sales 2,660,000.00 EUR
(2) Direct cost(a) Direct materials 905,500.00 EUR(b) Direct labor 263,750.00 EUR(c) Shipping 60,000.00 EUR
CUSTOM COMPASS HOUSING(1) Sales 540,000.00 EUR
(2) Direct cost(a) Direct materials 69,500.00 EUR(b) Direct labor 87,500.00 EUR(c) Shipping 5,000.00 EUR
page: 38Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
- Controlling -
CPUT.ppt
1.1.7474CPUT - 6.08.2010
University of Applied Sciences
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Product Margins (8Product Margins (8--10)10)
Product margins-ABC
Sales 2.660.000,00 540.000,00
Costs:
Direct materials 905.500,00 69.500,00
Direct labor 263.750,00 87.500,00
Shipping 60.000,00 5.000,00
Customer orders (8-8) 192.000,00 128.000,00
Product design (8-8) 0,00 252.000,00
Order size (8-8) 332.500,00 47.500,00
Total cost -1.753.750,00 -589.500,00
Product margin 906.250,00 -49.500,00
Standard
stanchions
Custom
compass housing
page: 39Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
- Controlling -
CPUT.ppt
1.1.7575CPUT - 6.08.2010
University of Applied Sciences
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Customer Margin (8Customer Margin (8--11)11)
Customer margin-ABC
Sales 11.350,00
Costs:
Direct materials 2.123,00
Direct labor 1.900,00
Shipping 205,00
Customer orders (8-9) 960,00
Product design (8-9) 630,00
Order size (8-9) 3.363,00
Customer relations (8-9) 1.470,00
Total of costs (10.651,00)
Customer margin 699,00
WINDWARD YACHTS
page: 40Prof. Dr. Carsten BerkauProf. Dr. Carsten Berkau
- Controlling -
CPUT.ppt
1.1.7676CPUT - 6.08.2010
University of Applied Sciences
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Product Margins Traditional Costing System (8Product Margins Traditional Costing System (8--12)12)
Product margins - traditional costing system
Sales 2.660.000 540.000 3.200.000
Cost of goods sold
Direct materials 905.500 69.500 975.000
Direct labor 263.750 87.500 351.250
Manufacturing overhead 875.000 125.000 1.000.000
(2.044.250) (282.000) (2.326.250)
Product margin 615.750 258.000 873.750
Selling and admin expenses (875.000)
Net operating income (1.250)
Standard
stanchions Total
Custom
compass housing