...Bridgeton Industries: Automotive Component & Fabrication Plant Answer 1: The primary competitions for Automotive Component & Fabrication Plant (ACF) of Bridgeton Industries were local suppliers and other Bridgeton plants. The ACF sold all of its production to the Big-Three domestic automobile manufacturers. As the US automobile market was growing and was dominated by the domestic automakers, the ACF experienced a period of healthy profitability. However, in the 1980s the competitive environment began to change. The domestic automobile manufacturers were challenged by foreign competition. In addition, scarce and expensive gasoline caused a decline in the domestic market share resulting in shrinking of the production contracts. The ACF felt the heat of this competitive pressure and experienced serious cutbacks. It even had to shut down a plant that manufactured fuel-efficient diesel engines in the model year 1986. All related production jobs were eliminated and skilled trade positions were reduced where possible. The cost accounting system currently in place at Bridgeton uses a mix of job and process costing. In order to allocate indirect costs, one cost pool (single overhead pool) system is used in which the overhead (burden) is applied to products as a percent of direct labor dollar cost. Answer 2: The overhead (burden) was allocated to the products at ACF as a percent of direct labor dollar costs. The overhead percentage was calculated at budget time and used...
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...Bridgeton Industries: Automotive Component & Fabrication Plant In the early 1900s, the Automotive Component & Fabrication Plant (ACF) was the primary production site for Bridgeton Industries. All of the ACF’s products was provided to the Big-Three domestic automobile producers. At that time, the competitors were only domestic suppliers and other Bridgeton plants. However, later on, competition became stronger due to the foreign suppliers increased. In addition, the expensive gasoline and scarce caused the ACF loss their market share. At the end of 1986, engine plant—one of the ACF plant had to shut down due to the unsustain growth in diesel-powered cars. The physical machinery, equipment and building were written down and taken off the plant books. In 1987, Bridgeton Industries employed a strategic consulting company. On the one hand, the Strategic consulting company needed to examine Fuel Tanks, Manifolds, Front and Rear Doors, Muffler-Exhaust System and Oil Pans. On the other hand, the strategic consulting company was also asked to classify all the five kinds of products in term of “world -class” competitive position and potential. After collecting data and doing interview, the consultants put the products in the following classification: Class 1: Fuel tanks (having costs equal to or lower than competitors’ costs) Class 2: Manifolds, Front and rear doors (having costs 5%~15% higher than competitors’ costs) Class 3: Muffler-exhaust systems and oil pans (having...
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...Bridgeton Industries Automotive Component and Fabrication Plant The union has worked with us and has even led in cost reduction programs. Now corporate is talking about outsourcing additional products. What more can we do to keep the business? mike lewis, plant manager The Automotive Component and Fabrication Plant (ACF) was the original plant site for Bridgeton Industries, a major supplier of components for the domestic automotive industry. The history of the plant dated back to the 1840s when the adjoining river attracted mills that processed the rich lumber resources in the area. The site progressed through several industrial uses, including an early wagon works, until it was finally purchased by the founder of Bridgeton. He opened his first office there in the early 1900s. All of ACF's production was sold to the Big Three domestic manufacturers. Competition was primarily from local suppliers and other Bridgeton plants. As long as the market was growing and dominated by U.S. manufacturers, this strategy worked. It became less effective when foreign competition and scarce, expensive gasoline caused domestic loss of market share. Suppliers found themselves competing for a shrinking pool of production contracts. Throughout the 1980s, ACF experienced serious cutbacks due to this competitive pressure. However, as the 1989/90 model year budget approached, ACF was still considered a critical plant. Model years ran from September 1 to August...
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...Bridgeton Assignment 1. The overhead allocation rate used in the 1987 model year strategy study at the Automotive Component & Fabrication Plant (ACF) was 435% of direct labor dollar cost. Calculate the overhead allocation rate using the 1987 model year budget. Why do you get different numbers? 2. Calculate the overhead allocation rate for each of the model years 1988 through 1990. Are the changes since 1987 in overhead allocation rates significant? Why have these changes occurred? 3. Consider two products in the same product line: Product 1 Product 2 Expected Selling Price $62 $54 Standard Material Cost 16 27 Standard Labor Cost 6 3 Calculate the expected gross margins as a percentage of selling price on each product based on the 1988 and 1990 model year budgets, assuming selling price and material and labor cost do not change from standard. 4. Are the product costs reported by the cost system appropriate for use in the strategic analysis? 5. Assume that the selling prices, volumes, and material costs for the 1991 model year will not change for fuel tanks and doors produced by the ACF of Bridgeton Industries. Assume also that if manifolds are produced, their selling prices, volume, and material costs will not change either. a. Prepare an estimated model year budget for the ACF in 1991 (1) if no additional products are dropped. (2) if the manifold product line is dropped. Explain any additional assumptions you make in preparing...
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...Seligram, Inc.: Electronic Testing Operations 1. What caused the existing system at ETO to fail? 2. Calculate the reported cost of the five components listed in Exhibit 6 using: a. The existing system. b. The system proposed by the accounting manager. c. The system proposed by the consultant. 3. Which system is preferable? Why? 4. Would you recommend any changes to the system you prefer? Why? 5. Would you treat the new machine as a separate cost center or as a part of the main test room? Bridgeton Industries: Automotive Component & Fabrication Plant 1. The official overhead allocation rate used in the 1987 model year strategy study at the Automotive Component and Fabrication Plant (ACF) was 435% of direct labor cost. Calculate the overhead allocation rate using the 1987 model year budget. Why do you get different numbers? 2. Calculate the overhead allocation rate for each of the model years 1988 through 1990. Are the changes since 1987 in overhead allocation rates significant? Why have these changes occurred? 3. Consider two products in the same product line: Product 1 Product 2 Expected Selling Price $62 $54 Standard Material Cost 16 27 Standard Labor Cost 6 3 Calculate the expected gross margins as a percentage of selling price on each product based on the 1988 and 1990 model year budgets, assuming selling price remains constant and material/labor costs do not...
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