Bridgeton Industries Case
Bridgeton Case
a) What is the competitive environment Bridgeton faces? What was Bridgeton’s response?
Bridgeton is facing stiff competitive pressure due to a shrinking market demand. Bridgeton sells primarily to the big three domestic automakers and starting in 1985 the Automotive Component & Fabrication plant (ACF) started to feel the loss of domestic market share. Bridgeton’s management inaccurately anticipated a continued growth in the fuel-efficient diesel engines market in the mid-1970s. In response to the external pressures of shrinking demand, Bridgeton started outsourcing product lines by classifying them on the basis of cost competitiveness. Bridgeton also aggressively pursued cost reduction by shutting down operations for example at the ACF plant. However they did not refine their product costing system displaying failure to understand cost drivers.
b) From Exhibit 2 we have:
1988 1989 1990
Direct Labor (DL)
Fuel Tanks $4,238 $4,415 $4,599
Manifolds 6,027 6,278 6,540
Doors 2,731 2,844 2,963
Muffler/Exhausts 5,766 0 0
Oil Pans 6,532 0 0
Total DL $25,294 $13,537 $14,102
Therefore % Change in Direct Labor from 1988 to 1990 = (($14,102-$25,294)/($25,294)) X 100 = -44.25%
Also from Exhibit 2:
Overhead by Account Number
1000 $7,806 $5,572 $5,679
1500 6,824 5,883 5,928
2000 3,794 2,031 2,115
3000 2,529 1,354 1,410
4000 8,888 7,360 7,433
5000 24,460 20,063 20,274
8000 5,946 3,744 3,744
9000 6,771 5,948 5,987
11000 5,011 3,150 3,030
12000 28,077 15,027 15,683
14000 9,784 8,025 8,110
Total Overhead $109,890 $78,157 $79,393 % change in Overhead from 1988 to 1990 -27.75%
Overhead allocation rate as a % of direct labor dollars (Total Overhead/ Total DL) 434.45% 577.36% 563%
% Change in Overhead from 1988 to 1990 = (($79,393 - $109,890)/($109,890)) X 100 = -27.75%
Overhead Allocation Rate as a % of Direct Labor Dollars for each of the three years:
• 1988: ($109,890/$25294) X 100 = 434.45%
• 1989:
a) What is the competitive environment Bridgeton faces? What was Bridgeton’s response?
Bridgeton is facing stiff competitive pressure due to a shrinking market demand. Bridgeton sells primarily to the big three domestic automakers and starting in 1985 the Automotive Component & Fabrication plant (ACF) started to feel the loss of domestic market share. Bridgeton’s management inaccurately anticipated a continued growth in the fuel-efficient diesel engines market in the mid-1970s. In response to the external pressures of shrinking demand, Bridgeton started outsourcing product lines by classifying them on the basis of cost competitiveness. Bridgeton also aggressively pursued cost reduction by shutting down operations for example at the ACF plant. However they did not refine their product costing system displaying failure to understand cost drivers.
b) From Exhibit 2 we have:
1988 1989 1990
Direct Labor (DL)
Fuel Tanks $4,238 $4,415 $4,599
Manifolds 6,027 6,278 6,540
Doors 2,731 2,844 2,963
Muffler/Exhausts 5,766 0 0
Oil Pans 6,532 0 0
Total DL $25,294 $13,537 $14,102
Therefore % Change in Direct Labor from 1988 to 1990 = (($14,102-$25,294)/($25,294)) X 100 = -44.25%
Also from Exhibit 2:
Overhead by Account Number
1000 $7,806 $5,572 $5,679
1500 6,824 5,883 5,928
2000 3,794 2,031 2,115
3000 2,529 1,354 1,410
4000 8,888 7,360 7,433
5000 24,460 20,063 20,274
8000 5,946 3,744 3,744
9000 6,771 5,948 5,987
11000 5,011 3,150 3,030
12000 28,077 15,027 15,683
14000 9,784 8,025 8,110
Total Overhead $109,890 $78,157 $79,393 % change in Overhead from 1988 to 1990 -27.75%
Overhead allocation rate as a % of direct labor dollars (Total Overhead/ Total DL) 434.45% 577.36% 563%
% Change in Overhead from 1988 to 1990 = (($79,393 - $109,890)/($109,890)) X 100 = -27.75%
Overhead Allocation Rate as a % of Direct Labor Dollars for each of the three years:
• 1988: ($109,890/$25294) X 100 = 434.45%
• 1989: