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Bennett Case

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Submitted By yagiz2010
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Case 19-1
Bennett Body Company
1. In response to the email of Paul Bennett:
The Bennett system has a higher cost of paperwork because we are using the Job Order Costing and the Conley System uses process costing. Conley Corporation uses Process costing in accumulating cost of production. We are costing products based on per job order bases. Conley is costing their production on a per department basis because it has standard model design. Our products are based on costumer's specification, and therefore each product is unique. Process costing can not be used under our present set-up.
Possible reasons for cost differences between actual and standard costs under Conley's system:
a. Materials Price and Usage Differences
b. Labor Rate Differences
c. Labor Efficiency Difference
d. Production Volume Difference
Standard costs are usually developed from previous year's experiences and some adjustments from each department's managers. If our product's sales volume is seasonal in nature, it would be better to have our overhead allocation rate change to monthly from annually. If not, we could stick to annual overhead rate for simplicity of computation.
Under our present production, it is preferable to stick with Job Order costing, unless we change our products to a more standard design (no customer specifications), and Process costing will not work under our system.
2. Since Bennett main operation concentrates on manufacturing customized trucks, they could still maintain using its job costing. This is because each model that they produce may not be applicable for future demands and they occasionally receive orders that require changes on previous model. But, in order for them to improve its costing system, perhaps they should incorporate standard job costing. This would greatly reduce their recordkeeping and paperwork costs and gives the management a proper measure of

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