Deer Company case
DEERE COST MANAGEMENT
1. COMPANY INFORMATION
2. STATEMENT OF THE PROBLEM
Jim Elsey, cost management specialist at Deere & Company in Moline, Illinois has been reached by Glen Lowery, sales manager in the Agriculture Products Division.
Glen is concerned that the sales margin for the Conveyor System has decreased the last 3 years. Glen wants Jim look at the costs involved the gatherer chain, which is purchased from a single supplier (Saunders Manufacturing). According to information from Susan, from purchasing, the supplier is a tough negotiator, which is not interested in keeping the business with Deere otherwise than under the conditions given by them.
The Conveyor system is a product that has been established for several years leading to the experience allows the learning curve is reflected in the production of this product. This must help under the combination of factors like: the learning rate of labor, the motivation to increase output, development and improvement, substitution of better material, etc.
Deere also sells aftermarket products, including the gatherer chain, through its dealer network; the price is set under competition prices.
Profitability Analysis for Gatherer Chain. (Johnson)
Two years Ago
Last year
Current Year Budget
Aftermarket price
$40.00
$36.25
$30.00
Purchase cost
$21.25
$22.61
$24.12
Cost-price ratio
53%
62%
80%
Unit sale
475,000
410,000
350.000
3. ANALISIS
a. Current Situation
According to the below exhibit, we can calculate that Saunders selling price has increased by 13.5% over the past two years.
Current year purchase cost $24.12 – Two years ago purchase cost $21.25= $2.87
$2.87 ÷ $21.25 = 13.5%
However the revenue of Deere has decreased by 76.9%
1. COMPANY INFORMATION
2. STATEMENT OF THE PROBLEM
Jim Elsey, cost management specialist at Deere & Company in Moline, Illinois has been reached by Glen Lowery, sales manager in the Agriculture Products Division.
Glen is concerned that the sales margin for the Conveyor System has decreased the last 3 years. Glen wants Jim look at the costs involved the gatherer chain, which is purchased from a single supplier (Saunders Manufacturing). According to information from Susan, from purchasing, the supplier is a tough negotiator, which is not interested in keeping the business with Deere otherwise than under the conditions given by them.
The Conveyor system is a product that has been established for several years leading to the experience allows the learning curve is reflected in the production of this product. This must help under the combination of factors like: the learning rate of labor, the motivation to increase output, development and improvement, substitution of better material, etc.
Deere also sells aftermarket products, including the gatherer chain, through its dealer network; the price is set under competition prices.
Profitability Analysis for Gatherer Chain. (Johnson)
Two years Ago
Last year
Current Year Budget
Aftermarket price
$40.00
$36.25
$30.00
Purchase cost
$21.25
$22.61
$24.12
Cost-price ratio
53%
62%
80%
Unit sale
475,000
410,000
350.000
3. ANALISIS
a. Current Situation
According to the below exhibit, we can calculate that Saunders selling price has increased by 13.5% over the past two years.
Current year purchase cost $24.12 – Two years ago purchase cost $21.25= $2.87
$2.87 ÷ $21.25 = 13.5%
However the revenue of Deere has decreased by 76.9%