N

Managerial
Accounting
Group Assignment- John
Deere

Key Takeaways from the John Deere Case

In the case JDCW a subsidiary of John Deere has bid for manufacturing of
275 components out of 635 components. But the main problem was the
price of these components that JDCW has bid was higher than those of its
competitors. So certainly there was an issue with the cost allocation and
accounts section. The main problem with JDCW accounting was that they
allocated some of the fixed costs such as setup costs and engineering
costs with all of the orders. These costs were included as general OH
costs. These overhead costs were allocated on the basis of machine hours,
direct labour, and direct material.
So as a result what happened was that the low volume or small size orders
was allocated low costs and in comparison the high volume or large size
orders were allocated large costs. But this method of allocation was not
correct, because the order costs or setup costs were similar in case of
both the high volume orders and low volume orders.
Also JDCW used the last year overhead rates in order to forecast the next
year rates. This will also lead to ineffectiveness or inaccuracy in the
costing.
The standard costing is typically applicable when the company is using
manual method of production but when the company is using automated
technique then this costing technique fails because the overhead costs
are more like setup costs, supervision costs etc.

Key Takeaways from

Activity Based
Costing

ANURAG SHUKLA FT173016

DINESH SINGH
FT173030
KARTHIK RAJENDRAN
FT173044
NISHANT SINGH FT173058
ROHINI GUPTA
FT173072
SHREEJA VERMA FT173087
VIKAS SINGH
FT173102

Activity Based Costing is a cost

accounting method which is
used so as to allocate the costs
effectively when the volume of production is not constant, in such cases
activity based costing needs to be used.
ABC gives more accurate results compared to the other costing methods.
It will take into consideration the unit costs rather than the whole costs. It
also considers the unit cost along with the cost incurred for the
manufacturing or production of that unit, and then ot is allocated. That is

the reason it is one of the most efficient costing technique. Thus the
costing is done by tracing on each of the activity. If we trace on more of
the activities and involve them in allocating the costs, the effectiveness of
the activity based costing technique will increase.
However there are some issues related to ABC technique like it is very
lengthy and time taking and also pricier than the standard costing
techniques.

Application of learning from both ABC/M and the

JD case to any company that a member of your
group had experienced and show how that
company can benefit and what you learnt from
this topic and case.
In todays world with the advent of new technologies and the processes
going more automated from the traditional manual methods it has
become imperative to use the activity based costing technique rather
than the standard costing technique. I would like to apply the ABC
technique in the firm named JSW steel limited, one of the leading steel
manufacturers of India where one of our team -mate has worked.
There was a variety in the number of products being manufactured in the
company namely Rolled sheets, TMT, Steel Wire, Bars. The rolled sheets
itself had a range of products within its ambit varying from 0.35mm
refined coil to 3.5mm thick sheets. All these were manufactured using
modernised automated techniques, so in such scenario Activity based
costing usage is a must. On the basis of tonnage of the steel product
manufactured the costs such as Direct Materials, Direct Labour and
Manufacturing Overheads - were allocated.
Be that as it may, fabricating the items from raw ore material and taking
care of to various areas to definite completion requires a great deal of
changes in term of setup and tooling, taking care of time, utilities and
other overheads involved, for example, packed air necessities, fuel gas
used for combustion that was produced internally, and taking into account
the capacity and intricacy of the machines.
As the manufacturing quantity of each variety of products fluctuated
every month with a distinction of around 5000 Mt/ month, we required a
costing method that would allocate Overheads based on units produced of
different segments so in our plant 'Activity Based Costing' would have
helped the units to comprehend its cost better when contrasted with
standard cost framework. ABC for this situation helps the association to
concentrate more on the quantity of various products to focus on, every
day to get greatest benefit by keeping away from costing mis-calculations
and better administration of procedure taking care of losses.