Wriston Manufacturing
Wriston Manufacturing
We identified seven factors contributing to the variance in overhead costs from plant to plant. However, in order to best understand how these factors contribute to inter-plant variance, it is helpful to first take note of the individual components of total overhead. As noted in the case, fixed overhead includes depreciation, utilities, salaries, and fringe benefit costs of employees, whereas variable costs consist of first-line supervisors’ wages, costs of set-up labor, scrap and rework costs, and fringe benefit costs for all direct and variable overhead laborers. It is also noteworthy that several of the factors identified below are material with respect to our analysis regarding how Richard Sullivan should proceed with the Detroit plant.
In terms of fixed overhead costs, the factors most relevant to inter-plant overhead variance are (a) differing depreciation schedules between plants, and (b) significant differences in the amenities offered within plants to employees. The case notes that, “[o]ver time, available investment dollars flowed to the newer plants,” and “[t]he condition of the machine tools…reflected the lack of investment.” Thus, we can conclude the depreciation schedules, and, therefore, the extent to which costs are spread across production are likely to vary between plants. Additionally, the amount of amenities offered within plants varies significantly , compounding the issues caused by varying levels of investment.
On the other hand, the factors contributing to the variance in variable overhead costs include (a) different product mixes and output volumes between plants, (b) the production processes utilized by plants, (c) absenteeism/turnover rates, (d) setup costs, and (e) the transfer of products and employees between plants. The case states that “[t]he complexity of the product missions assigned to each plant was, in fact, quite different” and the Detroit plant specifically had “been left with a residue of
We identified seven factors contributing to the variance in overhead costs from plant to plant. However, in order to best understand how these factors contribute to inter-plant variance, it is helpful to first take note of the individual components of total overhead. As noted in the case, fixed overhead includes depreciation, utilities, salaries, and fringe benefit costs of employees, whereas variable costs consist of first-line supervisors’ wages, costs of set-up labor, scrap and rework costs, and fringe benefit costs for all direct and variable overhead laborers. It is also noteworthy that several of the factors identified below are material with respect to our analysis regarding how Richard Sullivan should proceed with the Detroit plant.
In terms of fixed overhead costs, the factors most relevant to inter-plant overhead variance are (a) differing depreciation schedules between plants, and (b) significant differences in the amenities offered within plants to employees. The case notes that, “[o]ver time, available investment dollars flowed to the newer plants,” and “[t]he condition of the machine tools…reflected the lack of investment.” Thus, we can conclude the depreciation schedules, and, therefore, the extent to which costs are spread across production are likely to vary between plants. Additionally, the amount of amenities offered within plants varies significantly , compounding the issues caused by varying levels of investment.
On the other hand, the factors contributing to the variance in variable overhead costs include (a) different product mixes and output volumes between plants, (b) the production processes utilized by plants, (c) absenteeism/turnover rates, (d) setup costs, and (e) the transfer of products and employees between plants. The case states that “[t]he complexity of the product missions assigned to each plant was, in fact, quite different” and the Detroit plant specifically had “been left with a residue of