Woodward Farm Inc Case Study

1569 Words4 Pages

Intro:
Woodward Farm Inc has two divisions; farm equipment and farm supplies. In regards to the farm equipment, they produce two models: AZ42 and AZ45. The company is deciding whether or not to stop producing Model AZ42 because its revenues are much less than the revenues of the AZ45. Their competitor, Taylor Company, is selling more of Model AZ42 but Woodward farms does not seem to care since their AZ45 model is bringing in much more revenue. Joanne, in accounting, uses direct labour hours as the base for computing the overhead rates and does not want to change that. The overhead costs are $2,700,000. Janet, the plant manager, is concerned about how complex it is to produce Model AZ45. As well the company is facing a decision about their …show more content…

The first issue consists of whether we should discontinue the process of AZ42 production and only make AZ45. Although the financials figures reveal that the AZ45 produces a greater bottom line, a more intuitive analysis has to be undertaken in order to understand whether that is really the case. Determining cost per unit can be computed using the Traditional or the ABC costing method. The VP of Woodward Farm Inc. cannot stress enough how important it is to sell a greater quantity of the AZ45 in order to conquer a greater market share.

Issue 2: Whether to change suppliers or purchase company trucks?
The second issue deals with the shipping supplier. The company 's original majority shipping supplier increased its rates by 10%. Now the company must decide if it will change suppliers or purchase its own company trucks in order to achieve the target budgeted net income of …show more content…

should not use the traditional method over the ABC costing method. Although the Traditional method is easier to implement, this method doesn’t take into account that Woodward Farm Inc. uses an automated process in order to produce goods.Therefore in this method, due to the automated process, direct labour hours is most frequently used in order to calculate the overhead cost. Under the traditional method other cost drivers such as quality control and soldering activities would not be accounted for which results in an inaccurate representation of the actual image of the company 's progress. Therefore if traditional method is used to compute the overhead, this could lead to inaccurate and wrong managerial

Open Document