Managerial Accounting: John Deere Component Works Essay

The current cost system allocates overhead costs once a year, as a function of direct labor dollars. This allocation strategy results in:

The purpose of this report is discussing the case of Wilkerson Company that confronting tough competition in price cutting in pumps which caused to a big drop of pre-tax operating income from 10% to 3%. After observing the existing costing allocation, we found out there is an issue on the existing costing report that the manager could not be able to see the real situation. In light of this, there will be brought to the discussion on the feasibility of using an alternative costing method – Activity based costing (ABC) in the latter paragraphs.

While we are performing our analysis on different aspects of the company, we look at the three main types of cost. When we remain devoted to improving our costs, and the faults related, we show our same devotion to our consumers. This is portrayed by the quality of products we put on the shelves. Prevention costs, appraisal costs and Failure costs are areas

Under an ABC system, the allocation of costs to products is achieved through at least four analytical steps. Firstly, costs are grouped into activity levels. Secondly, cost drivers are

b. I do not think that the capital of Illinois plant should change its current cost system. The plant is also using the production-run direct labor cost to allocate its overhead costs. However, because the plant produces one product with no customization, with materials purchased from local manufacturers all made by hand (little overhead cost-Exhibit 2) this cost system is effective and should not be changed.

1. Assess the implementation of the time-driven ABC system at Kemps. What do you like about it? What are you less happy with, and would have done differently?

2. How have Deere’s business strategy choices strengthened or weakened its competitive position in the agricultural and construction equipment industries?

The business is currently using a traditional or standard costing method which management are not confident in the product cost generated by the accounting system and are also using the current costing data extensively for other decision-making within the firm.

Abby Conroy was tasked with calculating an effective quote for Breeland Ltd., she chose the activity based accounting costing system since it more accurately captures the related costs. A special order was placed by Breeland Ltd. with Ace Fertilizer Company. The did not plan to order more of this product in the future. Based on Ace’s policy, the special order included disposal costs for any used materials in the event no other orders existed for the unused materials at the time the Breeland contract was signed. Abby correctly calculated the total direct material and labor costs and accurately arrived at the indirect costs using the ABC method and used cost activity pools that make sense for the company and

• The system also fails to compute material usage variances, which only further discredits the accuracy of the accounting cost structure. For more accurate measure of material usage, the quality assurance department must include this variance calculation in its weekly report.

INTRODUCTION Businesses – from manufacturing, merchandising and service industries alike – take careful consideration in the analysis of their costing systems in order to be able to set up competitive prices in the market. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods which Zauner Ornaments have used or is currently using and, in conclusion, be able to distinguish the advantages and disadvantages of each costing method. CASE CONTEXT The case seeks to assist Zauner’s comptroller, Yu Chia-yi, in determining the best costing method for their overhead costs. In addition we also aim to

A respected food scientist at Fine Foods, Kay Smith, who also happens to be the manager of Strategic Marketing Unit Two, believes that there is inaccurate product costing in her unit. She has had education on process engineering but has little accounting knowledge. She feels that the method that Fine Foods is carrying out to calculate operating profit does not reflect the true performance of her SMU, and that the

The company used the standard costing system and due the high complexity of the products, the product cost was inaccurate.

Under the new cost system, two broad sources of costs were identified: manufacturing and SM&A. All costs within these categories were reclassified as either volume driven or order driven. Hence, four cost pools were set up.

During the 1980s the limitations of traditional product costing systems began to be widely publicised. These systems were designed decades ago when most companies manufactured a narrow range of products, and direct labour and materials were the dominant factory costs. Overhead costs were relatively small, and the distortions arising from inappropriate overhead allocations were not significant. Information processing costs were high, and it was therefore difficult to justify more sophisticated overhead allocation methods.