John Deere
A1.
Strengths
Including machine hours and labor
Simple system
Good for times when there is not a lot of difference year to year and when volume is high because cost allocation are based on volume related overhead rates.
Tying maintenance to machine hours and labor
Depreciation per machine hour
Weaknesses
Allocating machine set-ups per machine hours
Allocates overhead not per product
No useful with wide range of products and volumes
No material usage variances were computed by QA
Employee benefits per machine hours
A3.
The cause of the costing system's failure was its inability to differentiate how machine hours were allocated by product unit. Thus, you are unable to understand the true production costs. Further, budgeted overhead rates were computed based on last year's figures so this system was not useful when volume was changes and declining year to year.
The symptoms and evidence of this include the huge range of variation on quotes for many parts, the higher volume units that had higher costs per unit (it is counterintuitive for a plant to be the most cost effective on low-volume and low-value parts), that the standard costs exceeded vendor prices by 35% on average although process wise they are competitive, and the large dispersion from competitor quotes that range from 50-60% and 200-300% on others.
A5.
Product A103 Cost Analysis Material cost per 100 parts $6.44
Dir. Material Overhead $0.02
Per. Material Overhead $0.08
Direct Labor Hours/100 0.185
ACTS Hour/100 0.31
Labor Rate $12.76
Machine Setup $4.20
Volume 8000
Runs/Year 2
Direct Machine Rate 8.99
Period Machine Rate 7.61 ABC Method Standard Method Overhead Overhead
Labor Support OH $2.62 Direct Labor OH $4.84
Machine Ops OH $5.15 Machine Hours OH $8.54
Machine Setup OH $3.54 Materials OH $0.62
Production Order OH $2.86 Total Overhead $14.01
Materials Handling OH
Strengths
Including machine hours and labor
Simple system
Good for times when there is not a lot of difference year to year and when volume is high because cost allocation are based on volume related overhead rates.
Tying maintenance to machine hours and labor
Depreciation per machine hour
Weaknesses
Allocating machine set-ups per machine hours
Allocates overhead not per product
No useful with wide range of products and volumes
No material usage variances were computed by QA
Employee benefits per machine hours
A3.
The cause of the costing system's failure was its inability to differentiate how machine hours were allocated by product unit. Thus, you are unable to understand the true production costs. Further, budgeted overhead rates were computed based on last year's figures so this system was not useful when volume was changes and declining year to year.
The symptoms and evidence of this include the huge range of variation on quotes for many parts, the higher volume units that had higher costs per unit (it is counterintuitive for a plant to be the most cost effective on low-volume and low-value parts), that the standard costs exceeded vendor prices by 35% on average although process wise they are competitive, and the large dispersion from competitor quotes that range from 50-60% and 200-300% on others.
A5.
Product A103 Cost Analysis Material cost per 100 parts $6.44
Dir. Material Overhead $0.02
Per. Material Overhead $0.08
Direct Labor Hours/100 0.185
ACTS Hour/100 0.31
Labor Rate $12.76
Machine Setup $4.20
Volume 8000
Runs/Year 2
Direct Machine Rate 8.99
Period Machine Rate 7.61 ABC Method Standard Method Overhead Overhead
Labor Support OH $2.62 Direct Labor OH $4.84
Machine Ops OH $5.15 Machine Hours OH $8.54
Machine Setup OH $3.54 Materials OH $0.62
Production Order OH $2.86 Total Overhead $14.01
Materials Handling OH