We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Manufacturing and Costs Essay Sample

essay
The whole doc is available only for registered users OPEN DOC
  • Pages:
  • Word count: 612
  • Category: cost

Get Full Essay

Get access to this section to get all help you need with your essay and educational issues.

Get Access

Manufacturing and Costs Essay Sample

ACF, an automotive supplier, was doing well as a company until foreign competition began to hurt its cash flow. ACF primarily caters to the domestic auto market and therefore experienced a hit to its production contracts post 1985 when the domestic automakers lost marketshare resulting in a shrinking cost inflow for ACF. This caused ACF to analyze the current cost structure of ACF’s products and appropriately classify them in terms of world class competitive position and potential. The resulting classification of the products were as below:

Class 1: Fuel Tanks
Class 2: Manifolds, Front and Rear Doors
Class 3: Muffler-exhaust systems and oil pans

The evaluation also found that overhead was 435% of DL dollar cost, which is excessive. Consequently, ACF outsourced the its Muffler-exhaust systems and oil pans in 1988 in order to stay competitive in its product line up. 60 DL jobs and 30 indirect jobs were slashed. Reducing downtimes and improving efficiency in the assembly line improved productivity.

In spite of the above corrective measures, the manifolds were further degraded from Class 2 to Class 3 and a move to outsource their production. And in spite of all the above measures, the plant was still losing business. The plant manager is looking for more options to stay competitive.

Analysis:

Looking at Exhibit 2 price chart for Bridgeton, there are two major problems with the way the cost is laid out in the chart 1. The costs are aggregated by year and not by the individual products. 2. The above is further complicated due to the fact that the overhead costs are aggregated across the various product lines offering no clarity on the volumes of the overhead resources needed by product. Further analysis of the overhead cost structure shows even though the Class 3 products have been outsourced, the overhead still remains high and even goes from than the previous already high 435% to 563%. Estimating 1991 product costs with increases commensurate with the 1989-1990 increases causes the OH costs go up even further to 666.5%. With the current product cost structure, the average profit for a $20,521 profit.

Exhibit # 2. The product costs trend up even after outsourcing the least efficient product lines. It is therefore important to understand the accurate costs and projected volume per product so correct BEV calculation is made possible.

Exhibit 3 calculates the product costs per product by allocating the Overhead as a percentage of the DL and then distributing the fixed/Variable OH costs as per the cost spread given in the table. Distribution of the OH costs as fixed manufacturing and fixed non manufacturing is based on whether the costs can be attributed to a product related manufacturing activity or not. Any machine/tool related cost is attributed to the fixed manufacturing OH cost. All other expenses are fixed non manufacturing period costs. The 1991 estimates assuming manifolds are outsourced are also calculated for Direct costs as well as overhead keeping the pace of growth similar as the previous year. So for the overheads (both manufacturing and non manufacturing), this means keeping them steady at 1.6% and 1.5% respectively to yield a total overhead of $68,099.67 . Please refer to the Exhiblt # 2 for breakdown details. The reported product costs can be made better by reporting the volumes of the products produced in the period which will in turn help to understand the fixed/variable nature of the costs for the overhead and provide better product costs as a whole. This will help establish a better distinction of unit costs and will aid us define the operating profit per unit in a clear way.

We can write a custom essay

According to Your Specific Requirements

Order an essay

You May Also Find These Documents Helpful

Cost Benefit Analysis

Definition of cost-benefit analysis Cost-benefit analysis is the process of analyzing business decisions. The benefits of a given situation or business related action can be summarized, and then minus the associated costs. Some consultants or analysts have built a model to provide dollar value for intangible assets, For example, the benefits and costs of living in a town will most analysts take into account opportunity...

Standard Costing: Meaning and Objectives

“Standard costing” is a traditional cost accounting method and management tool in which “standard costs are employed to value the overall cost of a production”. A “ Standard cost” can be defined as a “predetermined/estimated future cost of performing an operation, producing a good or offering a service”.  As explained in our workbook, using standard costs enable managers to identify in advance material, labor and...

Management Information Systems

1.What is the relationship between management information systems (MIS) and information technology (IT)? Management information systems (MIS) deals with the coordination and use of information technology. MIS plans for, develops, and manages the use of information technology tools to help people perform tasks related to information processing and management in their personal lives, careers, and/or just for every day actions when working with information. MIS...

Geometry: Integral and Surface Area

* Computation of the surface area, amount and type of needed material and the volume of the package. Volume V= L x H x W = (23 cm) (4 cm) (12cm) = (276) (4) = 1 104 cm Area A= L x W = (23cm) (12cm) = 276cm Surface Area A= 2(Lh) + 2(Lw) + 2(Wh) / 2( lh + lw + wh) = 2(23*4)...

Blue Nile Case Research: Managerial Accounting

1.Blue Nile’s Strategy for success in the marketplace is to increase Blue Nile recognition and create more customer traffic. They want to build a brand loyalty among their customers to encourage repeat purchases. Blue Nile has both online and offline advertising. They offer a wide range of high quality diamonds to appeal to more buyers. Also to keep their pricing competitive. a.I would think that...

Sorry, but copying text is forbidden on this website. If you need this or any other sample, we can send it to you via email.

We can't stand spam as much as you do No, thanks. I prefer suffering on my own.
logo

Emma Taylor

online

Hi there!
Would you like to get such a paper?
How about getting a customized one?