MEMORANDUM
TO: Chief Executives and Management
FROM: Erik Rocha
DATE: September 1, 2014
SUBJECT: Product Costs and Cost of Goods Manufactured Report for August 2014
Introduction to John Deere
John Deere has compromised to produce the best agricultural products in the market since 1837. Some of the agricultural products manufactured at John Deere include harvesters, tractors, trucks, planters, sprayers, seeders, and utility task vehicles. Many of the machines operating at John Deere’s factories run for 24 hours during the whole month. To specifically determine the cost of goods manufactured, the initial work in process, raw materials, labor costs, manufacturing overhead, and ending work in process need to be accounted.
Manufacturing
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Raw materials are the basic parts in the manufacturing process. All the accounting information was taken from the month of August 2014. Raw materials include items like paint, aluminum, plastic, rubber, plastic, etc. To find all the direct materials used, the initial materials inventory is added with the material purchases and then the ending material inventory is subtracted. John Deere acquired $3,000 in raw material purchases and initially had $1,000 in Raw Materials
Inventory and ended up with $500 in Raw Material Inventory by the end of the month. As a result, the company reported a total amount of $3,500 in Direct Materials used.
The company officially reported $5,000 in direct labor and $900 in manufacturing overhead for the month of August 2014. Manufacturing overhead includes all costs indirectly associated with the final product. As a result, the total manufacturing costs add up to $9,400 after adding the Direct Materials cost. Lastly, the addition of the beginning work in process of $6,000 and the subtraction of the ending work in process of $1,000 resulted in a total cost of goods manufactured of $14,400 for the month of August 2014.
Cost of Goods Available for Sale and Net Income
The John Deere Harvester ultimately sold for unmatchable price of $20,000. John Deere reported $1,000 in beginning finished inventory and $2,400 in finished goods inventory for the month ended. To
An analysis of consumer behavior will provide insight into the behavioral segmentation, customer perceptions and benefits, and why the intended target market would select Deere’s JD750 over Caterpillar’s D-5 sized machines. This section will highlight a few of the details as it relates to Deere and the Five-Stage Model of the Consumer Buying Process. Deere dominated the smaller tractor market because it understood the wants and needs of the
In 1847 John Deere promised, "I will never put my name on a product that does not have in it the best that I have in me." For more that 157 years John Deere has remained true to that commitment -- building their reputation by building value into every machine that bears their name. So you can count on equipment that's as productive as possible. Up and ready to work when you are. And designed to minimize your daily operating costs. Nothing Runs Like a Deere
This document provides an in depth company analysis of Deere & Company (DE). In the first segment of the analysis, an overview of John Deere’s history, product and service offerings, corporate strategy, and a synopsis of the heavy equipment production industry will be evaluated. The second segment includes a financial overview and analysis of the three most recent
14. If 11,000 units are produced, what are the total amounts of direct and indirect manufacturing costs incurred to support this level of production?
One of the major benefits of expansion is the reduction of fixed cost (fixed and selling). The cost is absorbed by 85,000 units instead of 80,000 units resulting in saving of $0.42 per unit.
On his talk show Paul Harvey had one famous speech “So God made a Farmer.” In the speech he describes a farmer as firm but caring, He says, “. . . It had to be somebody who’d plow deep and straight and not cut corners; somebody to seed, weed, feed, breed and rake and disc and plow…So God made a Farmer.” John Deere has helped farmers accomplished many of those things he listed seeding, weeding, and plowing. Plowing might be last on the list for Paul Harvey, but it is the first accomplishment of John Deere which turned into to a big and outstanding company. John Deere created the first steel plow in a little blacksmith shop in Illinois.
330-10-30330-10-30-1 The primary basis of accounting for inventories is cost, which has been defined generally as the price paid or consideration given to acquire an asset. As applied to inventories, cost means in principle the sum of the applicable expenditures and charges directly or indirectly incurred in bringing an article to its existing condition and location. It is understood to mean acquisition and production cost, and its determination involves many considerations. 330-10-30330-10-30-2 Although principles for the determination of inventory costs may be easily stated, their application, particularly to such inventory items as work in process and finished goods, is difficult because of the variety of considerations in the allocation of costs and charges.
Account/Description Manufacturing overhead Cost of goods sold Actual overhead costs Incurred on account Indirect materials Indirect labor Depreciation $120,000 14,000 20,000 8,000 $162,000 Applied overhead costs Job 7640 Job 7641 Job 7642 $43,200 57,600 66,000 $166,800 $162,000 166,800 $4,800
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:
Manufacturing overhead Rent on production equipment........ $ 6,000 Insurance on factory building ....... 1,500 Depreciation on factory building............................................ 1,500 Utility costs—factory........................ 900 Property taxes on factory building............................................ 400 Miscellaneous expenses— factory .............................................. 1,000 Total manufacturing costs..................... Total cost of work in process ...............
Deere & Company, together with its subsidiaries (John Deere), incorporated in 1958, operates in three business segments: agriculture and turf segment, construction and forestry segment, and credit segment. The agriculture and turf segment, created by combining the former agricultural equipment and commercial and consumer equipment segments, manufactures and distributes a range of farm and turf equipment, and related service parts. The construction and forestry segment manufactures, distributes to dealers and sells at retail a range of machines and service parts used in construction, earthmoving, material
Overhead costs include rent, office staff, depreciation, and other. Once the flexible budget was complete, variances between the actual and flexible budget could be calculated (Exhibit B). The variance for frame assembly was favorable with actual costs being $82,663 less than in the flexible budget. The variances for wheel and final assembly however were both unfavorable. Wheel assembly had an unfavorable variance of $50,650, while final assembly variance was the highest at an unfavorable variance of $231,200. Taking into account these three aspects of direct cost, direct cost has an unfavorable variance $199,187. Although most overhead costs are fixed, 2/3 of other costs are variable and increase with the increased production. As shown in Exhibit B, overhead variance is unfavorable at $60,000. The direct cost variance and overhead variable together lead to a total unfavorable variance of $259,187.
• This cost method does not provide the best system for JDCW’s cost allocation. By using only three overhead rates the present system grossly undermines the true production costs since other activities of the production process are not acknowledged.
Although agricultural equipment is still the main revenue generator for John Deere, they are also a major producer of forestry, construction, commercial and
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