American Connector Company Case Essay

• A situation where a reduction in production will result in less overhead allocated to the respective product

| * Having very little financial resources can leave Fresh Connections susceptible to the business uncertainties of this industry * Currently highly dependent on a stagnating market segment as Retail make up half their sales

Target Corporation’s (NYSE:TGT) share price declined nearly 7.5% in the last month alone, amid the potential threat of higher taxes from Donald Trump’s new administration. Aside from higher taxes, the company looks in a very solid position to expand its profitability and dividends.

One of the major benefits of expansion is the reduction of fixed cost (fixed and selling). The cost is absorbed by 85,000 units instead of 80,000 units resulting in saving of $0.42 per unit.

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

Threat from Buyers: Buyers hold an advantage in our current market plan. To maintain the perception of exclusivity with our new product line, we are limiting the number of retailers who carry the line to a few high end stores. This limit gives some power to these retail chains. To balance some of this power, we will seek contract limitations and agreements with these retailers. Currently Company G offers average credit to these buyers however Company G can offer better credit terms to these intermediaries if needed.

Executive SummaryQuality and efficiency is the key to American Connector Company (ACC) success. ACC has lost market share to DJC over the recent years, which will be exacerbated if DJC opens a production facility in the United States. DJC has gained much knowledge from its Kawasaki plant and is going to enter the US market with factories that will be efficient. ACC is in trouble and needs to drastically change the way they do business if they want to survive.

In assessing the variance report, both favorable and unfavorable areas were found in the materials and labor results. First, the direct materials variances report indicated a favorable outcome for the cost/price variance with no variance reported between actual and budgeted costs. The lack of variation is an indication that the expected materials expenses were unchanged from planned to actual results. However, the report exposed a $7,750 unfavorable variance in materials efficiency. The unfavorable difference in materials efficiency is an indication that more materials were used in the production than were anticipated which could be a sign of incorrect calculation of standards, inferior materials, spoilage, equipment, or staff issues (Benge, n.d.). Overall, the unfavorable materials efficiency variance resulted in a total difference of $7,750 for direct materials. Next, the direct labor variance report revealed that there was a $33,000 favorable result for the cost of labor. While more hours were required, the price of labor was less than budgeted. However, the labor efficiency variance indicated that there was an unfavorable variance of $48,000. This difference which is an indication that production takes longer than anticipated is proven by actual hours of 33000 instead of 30000. Overall, the unfavorable labor efficiency variance resulted

Common causes of variation in a production process are a result of the design of the product and production system.

The cost of OS-367 may have increased under the ABC system due to the fact that it the cost of the product needed to be increased to cover all the overhead costs. Activity based costing allocates costs to different areas based on the actual product and service in relation to consumption. Traditional cost allocation allows the company to divide the costs by department and utilizes volume- based information to determine the allocations. Therefore, OS-367 may be the only product that needs a certain machine to be produced and the cost of that machine would be allocated to this certain product. In this scenario, it increased the overhead costs and total cost allocated (ABC), thus the cost per unit needed to be increased. The increase in cost per

Improving the quality of the product. This would result in an increase in the variable cost per unit by shs 30.

Besides, decreasing the production cost is also important as the firm can then lower the price. So the decisions related to change in plant size, process improvement and the training are also important.

The company analyzed that the way their products were designed using the cradle-to-grave process released toxic material

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.

Large quantities of work in process are often characteristic of this type of production system. This may lead to longer throughput time, poor quality concealed by bundles, large inventory, extra handling, and difficulty in controlling inventory