Essay About Overhead Cost And Direct Labor Costs

Bridgeton – Case Study – nmajgi
Search
Essays
Sign up
Sign in
Contact us
Tweet
Index
/Business
Bridgeton
[pic 1] Question1:The strategic analysis conducted by the consultants did achieve its objective of classifying the products in terms of competitive position and potential. Four metrics quality, customer service, technical capability and cost were used to classify the products. Although these metrics completely captured the competitive position and potential of a product, the data used for this strategic analysis, especially the overhead cost seems to be based on incorrect cost allocation method. Bridgeton had a single plant wide overhead pool and a single allocation base that was the direct labor costs. This cost accounting is flawed because the plant had product diversity and the overhead cost structure assumed that all overheads are driven by direct labor.  This kind of accounting will over cost labor intensive and high volume products and under cost the less labor intensive and low volume products. So this flawed cost allocation method might have created distortions and could have led to wrong classification of the products.Outsoucrcing will help companies to focus more on their core businesses while giving out the less important and non-core work to outside vendors. Reduces labor and operational costsBy outsourcing firms can use outside resources that might have access to top class technologies. This can help increase the quality of the product and also reduce the time taken to complete the productInternal company resources will be freed up after outsourcing and can be better utilized by putting it to other tasks that are more profitable.Question2:     a.  If overhead costs were entirely fixed costs then there would be no savings     in outsourcing. All the fixed costs will still have to be borne by Bridgeton to operate the plant to produce the remaining product lines.In 1989, the total direct labor cost reduced by 46.5% from the previous year. Now assuming that the overhead costs directly vary with direct labor costs, the overhead cost in 1989 should actually be $109,890*(1-0.465) = $58,791.Now taking the difference between the 2 years, we get a total savings of  $51,099 ($109,890 – $58,791)b. Looking at the year 1988, the rounded overhead allocation rate is 435%. So the                    consultants might have thought that about 435% of the direct labor costs of both muffler and oil pans would be saved by outsourcing. The direct labor costs for the year 1988 for both muffle and oil pans were $5766+$6532 = $12,298. 435% of this value is $53,496. The consultants estimated a savings of 53,496 dollars.

c.  [pic 2]Total savings in direct labor cost: $11,757Total savings in overhead cost: $31,733So percentage savings: (overhead savings)/(direct labor savings) = 270%Question3:  I calculated the percentage difference in the labor costs from year 1988 to 1989. This comes close to 46.48% ((25294-13537)/25294). Similarly, calculated the percentage difference for each of the overhead account numbers for the same years.1000- wages of Janitors and truck driversPercentage Change: 28.62%Cost Type: MixedFixed component might include wages of Janitors and variable component might include the wages of truck drivers.1500- all plant salaried personnel expensePercentage Change: 13.79%Cost Type: FixedVery less percentage change when compared to change in labor costs. So most likely fixed. Wages are normally fixed unless it is direct labor costs.2000- production supplies such as gloves and packing materialPercentage Change: 46.47%Cost Type: VariableDirect linear variation with labor costs as the percentage change is the same. 3000- tools such as hammers, gloves and screwdriversPercentage Change: 46.46%Cost Type: Variable

Continue for 3 more pages »
Read full document
Download as (for upgraded members)
Citation Generator
MLA 7
CHICAGO
(2016, 01). Bridgeton. EssaysForStudent.com. Retrieved 01, 2016, from
“Bridgeton” EssaysForStudent.com. 01 2016. 2016. 01 2016 < "Bridgeton." EssaysForStudent.com. EssaysForStudent.com, 01 2016. Web. 01 2016. < "Bridgeton." EssaysForStudent.com. 01, 2016. Accessed 01, 2016. Essay Preview By: nmajgi Submitted: January 22, 2016 Essay Length: 940 Words / 4 Pages Paper type: Case Study Views: 380 Report this essay Tweet Related Essays Bridgeton The Bridgeton case introduced a relatively simple costing system: DM, DL, and one pool of indirect, support, or overhead costs. The one and only "cost 572 Words  |  3 Pages Bridgeton We all know what happened with the engine plant. The production workers did everything they could to cut production costs. They succeeded in bringing costs 742 Words  |  3 Pages Mgt 303 - Bridgeton Industries Human Resource Management MGT 303 Globalization and the some of the Challenges it presents to Human Resource Management With the proliferation of the internet international 1,375 Words  |  6 Pages Get Access to 89,000+ Essays and Term Papers Join 209,000+ Other Students High Quality Essays and Documents Sign up © 2008–2020 EssaysForStudent.comFree Essays, Book Reports, Term Papers and Research Papers Essays Sign up Sign in Contact us Site Map Privacy Policy Terms of Service Facebook Twitter