Essay about Bridgteon Industries Cost Accounting System

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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 …show more content…

The changed rates are due to the fact that the overhead reported in the accounts is not based solely on variable labor, but rather has other (including fixed) components. It is difficult to predict without more detailed accounting numbers and without interview employees exactly which of the overhead costs are fixed and which are variable, as well as which account is mixed. In reality, most of the accounts will have both fixed and variable costs. They will have initial costs to get started and ensure that they are available (i.e. fixed costs), and the more they are necessary (used), the more the costs will increase (i.e. variable costs). We can, however, make educated guesses as to which accounts are mostly variable, mostly fixed, and which have much of both (mixed). To do this, we look at two things. First is the cost structure of each account and how they change each year (Exhibit 2). However, it is difficult to estimate based on regression analysis or high-low methods because the change in direct labor is not significant other than between years with production and years with outsourcing. Therefore, we will probably learn more from guessing based on the descriptions of the accounts themselves (Exhibit 3).

Once we delve into each account, we see that many have a fixed portion. Regression analysis shows largely positive y-intercepts for many of the accounts.

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