Case study: on costing systems and cost control

Lorson Manufacturing Company

Case Study

Executive Summary

Lorson Manufacturing Company is actively seeking to implement tighter be influence measures in an industry that is largely governed by prices. The purpose of this plow is to present and analyse a new costing form proposed by Mr. Jan Lorson for the valve section of the company, and comp atomic number 18 it to the be body, in gear up to judge whether to go forward with its implementation.

The analysis uses a cast of examples to highlight the significant differences in be between the ii systems, and the impact that these variances have on the business.

It is concluded that the new system does provide a definite improvement over the existing one, based on the benefits perceived from its introduction versus the implementation cost envisaged. The benefits include more effective cost control and action measurement, precise stock valuation and more accurate gainfulness analysis. This would result in better decision-making on issues related to headstone product markets, profit margins, product introductions and deletions, as well as cost reduction.

General advice is also provided as to the extent to which further disruption down of the department into a larger number of cost centres would be useful, and the reasons behind objections by members of staff to the new proposal.

Analysis of exist Costing System

The current system uses a single bonnie hourly charge to allocate labour and overhead costs to the valve department. This rate is being calculated on a periodic basis by dividing the sum of the accumulated labour charges and department overheads by the number of labour hours worked. Job costs are determined by multiplying this single rate by the clock time each job spends in the department. Data for the calculations are derived as follows:

*Total labour hours from timesheets. Labour hours are actually put down separately...

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