John Deere Cost Accounting
Essay by Nathaniel John • October 17, 2016 • Exam • 492 Words (2 Pages) • 1,967 Views
Essay Preview: John Deere Cost Accounting
Case VI: Deere Cost Management
Background
Better known as John Deere which is an iconic brand recognized worldwide. They are manufacturers and distributes agricultural equipment. Also to lesser degree construction, forestry, commercial, and consumer equipment. They operate in 160 countries & Annual sales is estimated to be $14 Billion. Popular product sold by agricultural division. Conveyor System Component. Carries materials from point to point The gatherer chain Includes: 11.6 lbs of steel, 46 pins (used to join links), Estimated 20% scrap rate for steel.
Key Issues
Acute:
Saunders Manufacturing is the company that providing the gatherer chains in question. Jim will be responsible for making the recommendations as to what has to be done to make sure costs are decreased. Jim Elsey has to find out why their company is having decreasing margins through the analysis brought together team.
Chronic:
Deere & Co. had been experiencing an increasingly negative inverse relationship regarding the purchase price of the gatherer chains, and the number of chains purchased.
Analysis
Deere & company is experiencing a negative inverse relationship regarding purchase price of the gatherer chains and the number od chains sold per year. Approximately 11.6 pounds of steel & 46 individual pins are required to produce one finished unit, assuming a 20% scrap rate each unit would require 14.5 pounds of steel. Suppliers have been found by the analysis group that will help in reducing the cost of materials for Saunders manufacturing. Saunders have the “take it or leave” approach due to which negotiations with them are hard to come by.
Material Costs for Saunders Industry Type
$24.12
42% | Materials | $10.13 |
13% | Direct Labor | $3.14 |
6% | Indirect Labor | $1.45 |
20% | Overhead | $4.82 |
19% | Miscellaneous | $4.58 |
Saunders Selling price has increased by 13% over the past two years. Jim concluded that they should be paying approx. $5.72 for materials which was $4.41 more that what they were. If the cost of materials is reduced by $3, the cost to price ratio will be reduced by over 10% resulting in an increase of over 30% in gross weight over $1,000,000. Assuming Saunders uses general equipment to manufacture they will reduce overheads by 10%. This will only yield a 1%-point decrease in price to cost ratio, increasing margins by just under $200,000.
...
...