John Deere Case Study

1776 Words8 Pages
The following report is a consultation analysis of John Deere Component Works costing structure. Included is a discussion of the existing cost system as well as a comparison with the proposal of the Activity Based Costing system. The solutions to the required discussion issues have been thoroughly prepared and are hereby included. Problem Statement: The demand for John Deere Component Work’s (JDCW’s) products has suffered due to the collapse of farmland value and commodity prices. A number of continuous failures in JDCW’s competition for bids have placed an onus upon management to question its current costing methods. As a result, an analysis must be made regarding the current costing methods in order to determine their…show more content…
An example being the bidding attempt on the 275 parts. This reflects the company’s constricted cost system that revolves around a limited product diversity trend, instead of allowing for a correct forecast of diverse products that more realistically represent the volatile demand of the industry. Hence, it would only be logical to state that the JDCW’s yearly updated overhead rates are inaccurately calculated. As foreshadowed, the standard accounting cost system used by the company is significantly out of date. This is because the system was originally designed to handle a direct labor intensive production process with little overhead costs. However, when the company changed its production process to a more automated system, it simultaneously increased its overhead costs. This dramatic overhead increase was embodied through increases in supervision, maintenance, electricity, and setups. Since more overhead costs were now being incurred, a new system had to be implemented to adapt to this new environment. These weaknesses further support the fact that JDCW’s bids were continuously miscalculated in relation to their competitors. Using the existing system, management at JDCW continually under-costs its low-volume parts and over-costs its high volume parts. If its bids were to be based on the ABC method, JDCW’s costs would be

More about John Deere Case Study

Open Document