Case Study 4.1 Vershire Company

The purpose of this report is discussing the case of Wilkerson Company that confronting tough competition in price cutting in pumps which caused to a big drop of pre-tax operating income from 10% to 3%. After observing the existing costing allocation, we found out there is an issue on the existing costing report that the manager could not be able to see the real situation. In light of this, there will be brought to the discussion on the feasibility of using an alternative costing method – Activity based costing (ABC) in the latter paragraphs.

CVS Health Corporation is an integrated pharmacy healthcare and head quartered in Woonsocket, RI. The President and CEO of CVS is Larry J. Merlo. The company has three segments, Pharmacy services, Retail pharmacy and Corporate. CVS was previously known as Caremark Corporation and the name was changed to CVS on September 3rd 2014.

While we are performing our analysis on different aspects of the company, we look at the three main types of cost. When we remain devoted to improving our costs, and the faults related, we show our same devotion to our consumers. This is portrayed by the quality of products we put on the shelves. Prevention costs, appraisal costs and Failure costs are areas

Managerial accounting is essential for decision making. Making the best choice depends on the manager's goals, the anticipated results from each alternative, and the information available when the decision is made (Schneider, 2012). The different techniques associated with managerial accounting are very helpful in the decisions that need to be made. In order to truly understand decision making with managerial accounting one must first discern exactly what managerial accounting means and some of the techniques associated with it. The definition of managerial accounting will be discussed along with the techniques of cost management techniques, budgeting, and quality control.

However, as a new member with a new product, electronic product in North American market, the reputation is also an important attribute. Especially, quick delivery time is a key attribute for this company, due to the demand of quick delivery in all markets. Moreover, the manufacturing process of the new product, electronic product, on which our company will definitely focus, has a lot demands. Such as, technology, innovation and quick delivery time even the ability to make the product be the first one appearing in the market (other company, which is developing the same product, may become our competitive opponents). Especially, technology is predicted to play the most important role in the manufacturing process. On the other hand, the traditional cost system has a lot of limitations. Traditional costing system focuses on the cost reduction and the efficiency, particular the products with relatively few standardized components; Clifton, however, produces a wide range of airplane components. In addition, nonfinancial aspects of

The Last in first out (LIFO) liquidation Inventory valuation method was changed as Inventory level in1984, 1983 and 1984 was decreased by Harnischfeger. By adopting this process, inventory that was purchased at lower cost in previous years was sold at higher prices.

1. What is the competitive situation faced by Wilkerson? The critical product in term of market competition is the pumps of Wilkerson Company. The pumps are Wilkersons major product line with a production of about 12,500 units per month. Pumps currently have the lowest gross margin among all products, because competitors had been reducing prices on pumps and Wilkerson adopted its prices in order to remain competitive and to maintain the volume. 2. Given some apparent problems with Wilkersons cost system, should executives abandon overhead assignment to products entirely by adopting a contribution margin approach in which manufacturing overhead is treated as a period expense? Our conclusion is, that they should not adopt

John Deere Component Works (JDCW), subdivision of John Deere and Co. was in charged specifically of the manufacturing of tractor component parts. The demand for JDCW’s products had problems due to the collapse of farmland value and commodity prices. Numerous and constant failures in JDCW’s competition for bids, alerted top management to start questioning their current costing methods. As an outcome, the analysis has to be guided to research on the current costing methods with the intention of establishing legitimacy and to help the company in adopting a more appropriate costing system.

with a number of strategic issues facing a capital-intensive, mature industry. Their product costing system was

John Deere Component Works (JDCW), subdivision of John Deere and Co. was in charged specifically of the manufacturing of tractor component parts. The demand for JDCW’s products had problems due to the collapse of farmland value and commodity prices. Numerous and constant failures in JDCW’s competition for bids, alerted top management to start questioning their current costing methods. As an outcome, the analysis has to be guided to research on the current costing methods with the intention of establishing legitimacy and to help the company in adopting a more appropriate costing system.

Based on the real world functioning of businesses, every organization that deals with the process of manufacturing of certain products operates in accordance with the main principle of maximizing its profits. During the performance of daily activities, many business managers face a series of questions related to planning, control and decision making. In order to give answers to all these questions, an additional analysis needs to be considered. It is very important for managers to plan carefully how they are going to generate sufficient money to pay down costs and, in this way to result with a profit. As managers are interested in having the adequate information about the influence that certain actions might have on the profitability of the business, "Cost Volume and Profit" analysis plays a significant role by being a potential tool in facilitating the process of making the right decisions regarding planning and control in order to add value to the company. (Trifan and Anton, 2011). To further illustrate the essential impact that CVP analysis has on management authorities in making better decisions, I will refer to and analyze the case of the Hampshire Company which follows as below.

The purpose of this paper is to answer a few important questions: Why do companies allocate costs? How do companies allocate costs? And how this cost allocation can affect the decision making of the company. It is important for the companies to find the proper method to allocate the costs. Cost allocation is an important issue in many companies because many of the costs associated with designing, producing and distributing products and services are not easily identified with the products and services that are created. It would have been easier for companies to allocate cost if costs were directly traceable with the products and the cost allocation would have been minor issue for the company. The decision-making

The goal of traditional accounting practices is to achieve the lowest possible cost per unit by maximizing employee and equipment productivity. However, the goal of the plant’s

Upon analysis, it came to the fore that the current system had some obvious drawbacks which motivated the need for a new system. Under the old system, it was assumed that all customer orders placed the same demand on the resources of Kanthal. This was not accurate as customers differed by: the level of technical and commercial service they required, whether they demanded standard or non-standard products and by their ability to forecast their demand. Because of these discrepancies, under the old cost system an order which placed fewer demands on Kanthal's resources would be overcosted and appear to be unprofitable or less profitable than it was. This order would represent a hidden profit. Whereas, an order which placed a disproportionately large burden on the company's resources would appear to be more profitable than it was. This was a hidden loss order. Due to these hidden loss situations, many of Kanthal's resources were employed towards unprofitable products and customers.

Planning system weaknesses: To begin with, fundamental assumptions, such as new plants, inventory carryovers, packaging trends, etc., which are used for initial sales forecast, are entirely made by corporate headquarters. However, the divisional managers assume full responsibility for the estimates they submitted to the corporate head office. As a result, they have to make efforts to increase the overall accuracy of forecast and avoid making changes in subsequent reviews of the budget. Moreover, each product line uses the same forecasting method. It is ineffective for the company to make accurate budget since factors affecting each product line are different, such as industry trends, customer preferences and so on. Lastly, instead of plant managers, the district sale managers raise the sales budgets. However, the plant managers are held accountable for this budgeted profit number, which is connected with their performance and is not controlled by them.