Case Study : Ferguson And Son Manufacturing

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Recommended: Key features of activity based costing

Ferguson and Son Manufacturing has numerous issues with their current budgetary control system. The inefficiencies of their system reduce the company’s effectiveness. First, Tom the manager of the machine shop has know idea what the accounting report will show in the meetings. He doesn’t know if the report will be good or bad. If Tom has know clue as to what is going on he has know way to gauge if he is on track to meet the budget goals. He doesn’t know where the exact inefficiencies are or how to adjust them. Tom needs to know exactly what the owner and managers are looking for so he can make any necessary adjustments. Second, the system that is being used is based solely on cutting costs. Emory believed the goal of the company was a quality product but the management’s goal seems to be cost cutting. The owner of the company promoted Tom because of the quality of his work as a machinist, which means quality was a major goal of the company at one time. The owners son, Robert Ferguson, primary focus seems to be cutting costs and is not considering the quality of the work. The current system is only rewarding reductions in cost, which will result in managers not focusing on the quality of work. Sub par work will undoubtedly be detrimental to Ferguson. If Robert only focuses on cutting costs customer satisfaction will decrease. Employees should not be confused about the goals of the company. The third issue is the shop machinery. They lost a day’s work due to the hydraulic machine breaking down. Defective machinery can lead to defective products, lost man-hours, and lost resources. The defective machinery will lead to an increase in product costs. Fourth, the current system is not taking into account that labor is stopping larg...

... middle of paper ...

...re its pricing policies, inventory investments, equipment investments, etc.
Job costing can improve Fergusons ROI with a few steps. Ferguson must make sure they are pricing their services correctly. They must track production costs, determine the real value of service, and by making sure work is being done efficiently.
Through an activity based costing system, Ferguson will improve their ROI and free cash flow. Job costing will offer a protocol for costs and pricing and make it easier to achieve profits whose numbers will work positively with the ROI. Planned expenditures within the company’s operations will allow the budget control system to increase free cash flow in the company. The new system of budgeting for Ferguson will not only increase profitability for the company but will also increase efficiency for the achievement of the company`s mission.

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