Points to Address in Precision Case Study

This report will provide insight on what your management team should do concerning production costs. We will examine 2 different scenarios and provide our decision as to which makes most sense. In the first scenario, the total fixed cost of the production is 1,000,000. In the second

company’s finished goods inventory has shot up to a 60 days supply – twice the normal level. In addition,

Only the incremental costs and benefits are relevant. In particular, only the variable manufacturing overhead and the cost of the special tool are relevant overhead costs in this situation. The other manufacturing overhead costs are fixed and are not affected by the decision.

Hans Thorborg is the general manager of a manufacturing firm, Precision Worldwide, Inc., which produces steel rings for various domestic and international companies. Recently there has been a shift in the market to a new product, a ring made of plastic rather than steel. The new product is of a higher quality in regard to consumer concerns compared to the steel ring as well as much cheaper to produce for Precision Worldwide, Inc.

If more is produced when it comes to the budget, the fixed cost would be favorable. I believe that the each unit would lower cost when it comes to production in units. But since the total fixed overhead is extended over a huge amount of units, this will cause a lower production in unit. Lastly, it will increase the

100 plastic rings are 279.65. Plastic is more durable $506 to produce 100 steel rings than it does $100 plastic rings. Conduct a survey to see what machines are compatible with taking the plastic rings prior to converting over to all plastic. A lot of machines won’t take the plastic rings. Email to all loyal customers. Disadvantage is that we can’t reach all customers. $1350 per 100 for each sale of plastic and steel. Instead of losing 100% of everything get back what you paid for it and take it from

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.

7. Though numbers given in the cost data can not be contested, I would definitely contest the way total cost has been computed. The item 345 department operates within a large manufacturing facility that churns out number of other products too. Hence judging the profitability of item 345 on the basis of total cost is not practical.

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

One will note that six of the costs to consider are incremental. By definition, incremental costs would not be incurred if the part were purchased from an outside source. If a firm does not currently have the capacity to make the part, incremental costs will include variable costs plus the full portion of fixed overhead allocable to the part 's manufacture. If the firm has excess capacity that can be used to produce the part in question, only the variable overhead caused by production of the parts are considered incremental. That is, fixed costs, under conditions of sufficient idle capacity, are not incremental and should not be considered as part of the cost to make the part.

The current method of apportioning production overheads based on direct labour hours can be described as a traditional approach to product costing. In a manufacturing company’s financial statements, each item produced must be allocated some of the production overheads to make the statements compliant. Sometimes the individual costs of these items can be calculated incorrectly based on overall production overhead and the system of allocating in place, however the overall financial statement can still be accurate. This traditional method of allocating the production

Destin Brass Products is a manufacturing company specialized in brass products started in Destin, Florida, 1984, running by Roland Guidry (president), Peggy Alford (controller), John Scott, (manufacturing manager) and Steve Abbott (sales and marketing manager). There are three major product lines: valves (24% of company revenue), pumps (55% of revenue) and flow controllers (21 of revenue). Recently, due to its competitors keeping reducing product price, Destin found it become difficult to match such low price with a profitability decline under the current cost system. A meeting was held among senior management aiming to find out some new strategies to keep Destin’s competitive position.

1. Is the capital investment proposal described in Exhibit 3 and attractive one for Quality Metal Service Center?

In recent years, the US has increased tariffs on the steel industry in order to restrict