Superior Manufactoring

Overhead costs need to be accounted for this way we can understand just how much cost goes into producing each unit. There are other cost factors that contribute to the product aside from labor and material. Since the projected and the actual sales volumes do not align Kelly should be concerned with the other

Although the company did show an increased gross profit of $8,255,000 with $6,358,000 less Net Sales in 2013 versus 2012, that increase is due to the reduction in product Cost of Goods Sold by $14,613,000. Since increases in product price will negatively affect sales, one of management’s primary goals is to keep prices stable. This objective is achieved through implementation of cost cutting programs, investing in more efficient equipment, and automation of more steps in the production process.

Essentially, with the current cost system, the managerial analysis is highly flawed due to a lack of crucial in-depth cost information, as indicated by:

Overhead costs are not in proportion to the production output because of the method they are using. This leads to inaccurate pricing and costing decisions. An Activity Based Costing System would help find the real relationship between the products produced and overhead.

Q1. Based on the 2004 statement of profit and loss data, do you agree with Water’s decision to keep product 103?

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:

Q1. Based on the 2004 statement of profit and loss data (Exhibits 1 and 2), do you agree with Water’s decision to keep product 103?

1. It is a fact that item 345 has lost market share and as the product manager I would be concerned about it. By retaining FF20 price I can gain market share only if competition increases their price to FF20. At the outset this seems unlikely because competition has

Firstly, it is strategically beneficial for the company to continue to produce products A, C, and D. However, you should discontinue production of product B, as it is unprofitable and is losing the company money. Product B has been losing the company $2,307 per reel. If the company deems it is essential to keep producing product B in order to retain their customer base, we recommend changing the production schedule. For example, during times of lower demand, you can produce products such as B that do not make as much money, but you will still retain your customers’ business and satisfy their needs. During times of higher demand, by discontinuing the production of product B, the company will be able to produce the more profitable products such as A, C, and D.

WMC’s accounting practices incorrectly attribute fixed manufacturing costs to the three Detroit groups in a proportional manner, leading to Group 3’s lack of profitability. Discontinuation of Group 3 pushes a greater percentage of the fixed costs to the other groups impacting their ability to be profitable. Additionally, WMC does not consider the degree to which production at the Detroit plant contributes to the operations and

Essentially, with the current cost system, the managerial analysis is highly flawed due to a lack of crucial in-depth cost information, as indicated by:

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

INTRODUCTION Businesses – from manufacturing, merchandising and service industries alike – take careful consideration in the analysis of their costing systems in order to be able to set up competitive prices in the market. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods which Zauner Ornaments have used or is currently using and, in conclusion, be able to distinguish the advantages and disadvantages of each costing method. CASE CONTEXT The case seeks to assist Zauner’s comptroller, Yu Chia-yi, in determining the best costing method for their overhead costs. In addition we also aim to

Do you agree with Water’s decision to keep product 103? Continue Production End Production Sales (Net) $ 26,670,000 $

Under the new cost system, two broad sources of costs were identified: manufacturing and SM&A. All costs within these categories were reclassified as either volume driven or order driven. Hence, four cost pools were set up.