The managerial accounting system at Bridgeton, as it is presented, seems to be lacking detail necessary for efficient analysis. The sections used are sales, direct material, direct labor and overhead by account number, each divided into individual accounts and summed to find totals. There is no separation of fixed and variable costs in any of the accounts, making it difficult to analyze exactly where operations are costing money and, therefore, how they could possibly be improved. The presentation of the information groups all sales together and the different categories of costs together and does not provide for individual product analysis. The products are analyzed (categorized into classes) based on their costs, with no consideration to revenues associated with these products, and no real understanding of the overhead applied to each product. The overhead costs are applied to accounts based on labor and materials of the company as a whole, rather than using considerations associated with the individual products.
The presentation of the material is in dollars only. Overhead is applied to products as a percent of direct labor dollar cost. Factory profit for each year is found by subtracting direct material, direct labor, and direct overhead costs from total sales. The overhead percentage is calculated at the same time budgeting and is applied as a single overhead pool throughout each model year. The consulting company used 435% of direct labor costs in 1987 for their study; the budgeted was actually 437% (OH/DL=107,954/24,682). A similar percentage applies in the following year (109890/25294=434.5%). However in the next two years, after the outsourcing of oil pans and mufflers was enacted, the allocation of overhead in...
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... doors and manifolds. Mufflers directly contributed $28,911 in 1987 and $30,975 in 1988 and oil pans contributed $36,997 and $39,566.
To improve the system at ACF, these numbers need to be considered. A product line should not be eliminated simply because it is not world-class; if it is still contributing, it is probably a positive product, assuming it is not hurting the image of the company significantly. It is difficult to determine exactly whether it is contributing because we do not know the fixed and variable portions of manufacturing overhead. Employee interviews coupled with regression analysis using data from multiple years, possibly without the outsourcing disruption, could help to effectively estimate these costs. It is always dangerous to make produce/outsourcing and other decisions based on allocated manufacturing overhead if it is not handled properly.
Overhead based on units sold includes only sales and marketing. Sales and marketing will be targeted mostly towards the products that are already on the market, and so units sold is the best way to associate the cost with each product. (Figure A)
In the John Deere case, they were calling a lot of things overhead that weren't truly overhead (e.g. scrap, which is probably proportional to the amount produced). We discussed with my group how the internal transfer pricing arrangement probably encouraged the managers to think this way, since it awarded contracts on the basis of direct costs but, by the books, the actual transfer price was supposed to be the full price. In summary, the John Deere case was an exercise in thinking about how not to make pricing decisions.
The pros of using ABC is the capacity to estimate the cost of services and individual products. By transferring overhead costs to individual units of products or services, ABC helps identify inefficient or non-profitable products or activities that eat into the profitability of efficient processes or highly profitable products (Nayab, 2011). This will help the company to determine whether to implement processes for improvement or outsource those processes. ABC highlights non-remunerative distribution channels allowing the management to adopt alternative marketing strategies or close down the channel for a more pro...
In the case study provided, the B&L Inc. company is a manufacturer of trailers for highway transport trucks. They use three different divisions to manufacture about forty trailers per year. The current structure of the manufacturing process consists of the trailer division, a sandblast and paint division and the metal fabricating division. Brian Wilson, the materials manager, was asked by the general manager to look for opportunities that could reduce the operational costs of the organization. Pursuant to this directive, Brian decided to prioritize on reducing the cost of the metal fabricating. The one item that he has considered to outsource is the outrigger bracket. This is an accessory that is used to secure oversized containers.
Management accounting in organisation is very important for decision-making and to make the business more efficient and therefore increasing its profits. Is the process of preparing accounts that can help managers to make day-to-day and short-term decisions, by providing them with accurate and timely key financial and statistical information...
Since more than 40 years, Toyota Company was thinking how to develop the traditional process costing system and the production system. Some of the companies believe that the increasing of the production is a big profit, while Toyota proved the opposite. The more you increase the products out of the need of the market, the more losses you are going to gain. This kin...
Example: A garment Industry has 500 direct sewing operators and helpers. The cost to company for the 500 operators is Rs. 39,00,000. The company works for 8 hours per day for 26 days in a month. Therefore,
The purpose is to explain the similarities and differences between financial and managerial accounting. Provide examples of managerial accounting reports that she could see within EEC. This paper will explain both financial and managerial representing Eddison Electronic Company (EEC). They will both have the same usage which is to get ready and examine money related information related to the organization. The motivation behind both of these bookkeeping routines is to furnish the clients with enough data to settle on sound investment choices in regards to the organization. Consequently, both of these bookkeeping techniques will be exceptionally weighty in figuring out the budgetary status of the organization.
Hansen, D., Mowen, M., & Guan, L., Cost Management: Accounting & Control 6th ed., Mason, Ohio: South-Western
The second way is to achieve low direct and indirect operating costs is gained by offering high volumes of standard products and offering basic no-frills products. Production costs are kept low by using less parts and using standard components. Limiting the number of models produced to ensure larger producti...
When it came to output, our goal was to set production as close as possible to firm demand. We were off our amount by an excess supply of 279 units while the best firm was on the money at selling 6,003 units. The excess supply is considered our opportunity cost. From our eTexbook, we learned that the supply decisions affect the production and cost of goods while demand directly affects the quantity of units demanded (Asarta, 2016). In order to attain an effective output decision, we had to have our marginal revenue equal to our marginal costs. The process improvements decision relates to how efficiently we operate our capital and labor. Our process improvements did not change in quarter one. Next, we raised our plant size in quarter 1 to achieve lower costs which then provide economies of scale but according to the BTM manual, plant size changes do not occur immediately; hence why all three firms had a plant size of 9 in quarter 1 (Gold, 2012). Lastly our product development costs increased from $3,840 to $4,000. The purpose of product development is to cultivate, maintain and improve the quality of our products to increase market share by satisfying consumer’s
Chapter Summary. (n.d.). Financial and Managerial Accounting | . Retrieved May 28, 2014, from http://highered.mcgraw-hill.com/sites/0072396881/student_view0/chapter6/chapter_summary.html
"Both methods estimate overhead costs related to production and then assign these costs to products based on a cost-driver rate. The differences are in the accuracy and complexity of the two methods" (1) , Now we will discuss why ABC can result in more reliable products costs than conventional labor based product costing system . In recent years, the nature of industrial production has fundamentally altered; we will discuss their characteristics. First we have machine production and capital intensive, Now machines are the main tool and at the heart of production; labors maintain machines and supervise them, and machines are the ones that dictates the pace and rate of production. The second characteristic is high level of overheads relative to direct cost; in modern businesses they tend to use overheads in different ways for example: some products need engineering time and some products require machine time so that products will use overheads differently. The third characteristic is highly competitive international market, transportation including fast freight and relatively cheap; one of the advantages is the use of internet ensures that customers can easily and quickly reach and find products and also cheaply, this environment is highly competitive so companies need to know accurately their range of prices in order to use this information to gain competitive advantage over other
UK’s plant #1 is facing significant losses, due to high fixed and overhead costs. As future prospects are in red, the plant should be closed, equipment moved to plant #2. Planned annual savings are EUR 500k – EUR 750k.
Heisinger, K., & Hoyle, J. B.(2012). Accounting for Managers. Creative Commons by-nc-sa 3.0. Retrieved from: https://open.umn.edu/opentextbooks/BookDetail.aspx?bookId=137