Cost Accouting Systems for John Deere Component Works
Management Consultants
Report
Executive Summary
John Deere Component Works (JDCW) has been subject to a number of unsuccessful competitive bids due to the inherent deficiencies of their existing costing system. This has illustrated the importance of obtaining a thorough understanding of costs, and desirability of implementing a superior costing system.
This report contains: * A general overview of the problems confronted by JDCW * An analysis of the current standard costing system * An exposition of Activity Based Costing (ABC) * An evaluation of the strengths and weaknesses of each system * Recommendations
Company Background
Deere & Company is an iconic American corporation, renowned for being the world’s leading manufacturer of agricultural equipment. Founded in 1837 by John Deere, the company has transcended its humble beginnings to become entrenched in the global commercial landscape of industrial manufacturing.
The buoyant economic conditions of the 1970s propelled the demand for Deere’s products following World War II. In response to this, the company invested over $1 billion in plant modernisation, expansion and equipment. Deere also diversified into off-road industrial equipment.
In order to create additional production space, Deere & Company separated elements of tractor production and relocated these divisions to new plants. John Deere Component Works was established as a subdivision of Deere & Company and used to produce a variety of component parts for the equipment divisions. JDCW was comprised of three divisions, including the Gear and Special Products Division.
Following the 1980s agricultural crisis, the Gear and Special Products Division bid on a subset of the 635 machine parts offered by Deere & Company in order to fill excess capacity. However, due to uncompetitive pricing, it was awarded only a fraction of the parts for which it bid.
This revelation was used as a
Report
Executive Summary
John Deere Component Works (JDCW) has been subject to a number of unsuccessful competitive bids due to the inherent deficiencies of their existing costing system. This has illustrated the importance of obtaining a thorough understanding of costs, and desirability of implementing a superior costing system.
This report contains: * A general overview of the problems confronted by JDCW * An analysis of the current standard costing system * An exposition of Activity Based Costing (ABC) * An evaluation of the strengths and weaknesses of each system * Recommendations
Company Background
Deere & Company is an iconic American corporation, renowned for being the world’s leading manufacturer of agricultural equipment. Founded in 1837 by John Deere, the company has transcended its humble beginnings to become entrenched in the global commercial landscape of industrial manufacturing.
The buoyant economic conditions of the 1970s propelled the demand for Deere’s products following World War II. In response to this, the company invested over $1 billion in plant modernisation, expansion and equipment. Deere also diversified into off-road industrial equipment.
In order to create additional production space, Deere & Company separated elements of tractor production and relocated these divisions to new plants. John Deere Component Works was established as a subdivision of Deere & Company and used to produce a variety of component parts for the equipment divisions. JDCW was comprised of three divisions, including the Gear and Special Products Division.
Following the 1980s agricultural crisis, the Gear and Special Products Division bid on a subset of the 635 machine parts offered by Deere & Company in order to fill excess capacity. However, due to uncompetitive pricing, it was awarded only a fraction of the parts for which it bid.
This revelation was used as a