Essay on Jdcw Hbr Case Study

The problem that Deere faces is how they can successfully move to the middle of the perceptual map to be respected as a manufacturer of both small tractors and large tractors. There are several observations that can be made regarding the positioning of the competitors. The first observation is both International Harvester and Case are competing in both the large and small tractor market. It is evident that International Harvester experience financial difficulties perhaps as a result of not having a singular focus. Another observation is that Caterpillar’s decision to “reposition” itself from a small manufacturer to a large manufacturer could easily be explained by Paretti’s 80/20 rule. Caterpillar enjoyed an extensive dealer network, and their dealer sales ranged from $12 million to $70 million, versus Deere’s $1 million to $16 million in sales per dealer. By tapping into Paretti’s 80/20 principle, Deere could enjoy increased margins from the sale of parts alone.

Boer, G., & Jeter, D. (1993). What's new about modern manufacturing? empirical evidence on manufacturing cost changes. Journal of Management Accounting Research, 5, 61. Retrieved from http://search.proquest.com/docview/210171196?accountid=32521

14. A decision to work closely with a limited number of suppliers for the purpose of ensuring that the proper materials are available at the optimal time is an example of:

“Auerbach Enterprises uses machine hours as the cost driver to assign overhead costs to the air conditioners. The company has used a company-wide predetermined overhead rate in past years, but the new controller, Bennie Leon, is considering the use of departmental overhead rates beginning with the next year. “(Schneider, 2012). One product is affected more than the other by use of departmental rates rather than companywide rate.

Wilkerson employs a Normal Cost System, which means that they use predetermined overhead rates along with actual costs for direct material and direct labor. Normal costing systems are appropriate when overhead costs are a relatively small percentage of total manufacturing costs and product diversity is limited. For Wilkerson, normal costing does not make sense. Overhead costs make up over 50 percent of total manufacturing costs and their product offering is relatively more diverse. This indicates that the current accounting system in place may be distorting costs significantly. Supporting data:

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

The wages of general production employees who are idled due to machine breakdown are classified as indirect costs. Direct costs are usually variable and change as production volumes change. Thus, direct materials and direct labor are typically variable costs. For special orders, some direct costs can be fixed, however. The costs (depreciation, electricity, and routine maintenance) associated with a machine dedicated to one product are direct costs of that product. Indirect costs cannot be easily and conveniently assigned to a special order. Rather, these costs are common costs, in that they are incurred to produce a variety of special orders. Maintenance costs of general purpose equipment, the supervisor’s salary, and utilities are direct costs needed to produce special orders in general, but are indirect costs for a particular special order. Moreover, general production costs, including property taxes, insurance, lawn care, cafeteria costs, and miscellaneous supplies consumed in production are indirect costs properly allocated to special orders manufactured.

Under a traditional system, overhead cost is allocated to an activity based on hours or rates for direct labor or machine usage. However, this approach does not clearly indicate how much overhead cost will be needed in order to complete a job through a particular function. ABC methodology is to be used as an alternative to traditional accounting where a business 's overhead costs (indirect costs such as electrical energy consumption for heating or cooling, or indirect cost associated with marketing) are allocated as a proportion of direct costs, to an activity. This approach is unsatisfactory because there can be cases where two activities could absorb the same direct costs

Plum’s simple costing system allocates all manufacturing overhead on the basis of machine-hours, an output unit-level cost driver. Consequently, the more

The cost of dialyzers for HD ranges from $1000 to $5000 per year. Other items that factor into the cost of HD are additional facility costs such as maintenance and utilities, and the costs of transportation to and from the HD facility. Additional costs associated with dialysis are physician fees, medications, laboratory and other diagnostic investigations and hospitalizations. Hospitalization costs contribute substantially to total expenditures for dialysis patients Room costs and in-patient dialysis costs account for nearly half of the cost of hospitalizations for dialysis patients. Some evidence suggests that hospitalization costs are lower for PD than for HD due to a reduced

Successfully operating a company requires an understanding of how that organization functions within and reacts to the marketplace. Evaluating competitive position, properly aligning supply to meet consumer demand, and strategies to increase profitability and grow the business all play into the success or failure of an organization. While there are a broad variety of economic concepts that play into these evaluations and decisions, this paper will focus on the following (X#) concepts and how they apply to Eaton and their business.

In addition, it wrongly allocated its indirect costs at volume bases. The use of process technology mentioned in the case led to an increase in factory overheads Since direct labor hours was not a cost driver of them, allocating its large proportion of fixed factory overheads and other indirect batch-level costs on the basis of DLHs in this cost system did not accurately measure how resources were being used. As a result, these inaccurate allocations would have significant costs to Elkay. Moreover, it disregarded its cost structure in which most costs were “fixed” that would not vary in the short run and should be allocated based on its practical capacity. By using the “actual sales volume” as the allocation base for allocating its large corporate overheads, this standard costing system in fact over-pricing its products for its actual productivity was lower than the practical capacity under the intense competition. As a consequence of all problem within the standard costing system, PPD urgently needed an accurate costing system.

Madison industries offered to sell the reworked machinery to Johnson as special order for $68,400. Johnson agreed to pay the price when it takes delivery in two months. The additional identifiable costs to rework for the machinery to Johnson’s specifications are as follows:

The cost for machinery in setting up the machine is very high initial cost, included manufacturing plant as well as the cost of transportation has reduced the margin of profit (Baharudin, Wahid, 2006). However, IBS has demonstrated that the savings in the construction time is able to compensate the higher construction cost incurred (Baharudin, Wahid, 2006).