Model Solution to Peterson Pottery

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Model Solution to Petersen Pottery BEGINNING OF ASSIGNMENT A REQUIREMENTS Petersen Pottery is a manufacturer of ceramic toilets located in the United States which has been in operation since 1960. The demand for its products is increasing and the bank has required evidence of cost control before advancing the money needed for further expansion. Mr Petersen has attempted to employ standards and budgets unsuccessfully. Production Methodology: For the production process, please see Appendix A. As you can see from Appendix A, the major raw materials are clay and glaze. Potters are used for the majority of direct labour and the products are fired in kilns or ovens. Industry background: Macroeconomic analysis: The construction of…show more content…
This implies that far from installing effective controls over costs, Petersen’s cost accountant has managed to install and expensive system that is ineffective as the variances in Appendix D suggest as there is a total of $1,446.25U for the month. The master potter is being held responsible for variances that could all have been caused by the poor quality clay purchased by the Petersen himself. More spoilage due to poor clay would mean wasted materials, and labour – more so if the units broke after being glazed which seems to have been the case. If the master potter leaves, Petersen may not be able to maintain production at all in the short run as he would be very hard to replace. Alternative 2: : Revert to original management costing procedures Under this alternative, management could return to the old system of not monitoring costs at all. Advantages: This system would not place blame on individuals not responsible for actions causing problems. The master potter could remain focused on building good toilets. The company could get rid of the cost accountant and save his/her salary. Disadvantages: Return to the old system is not consistent

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