John Deere Component Works (A)

A.1. How did the competitive environment change for the John Deere Component Works between the 1970's and the 1980's? What information must management accounting systems provide to support effective decision-making in these different environments?

The change in the competitive environment greatly influenced JDCW. The early 70s were the end of the post WWII boom period, during which time JDCW was expanding its operations and operating many of its manufacturing plants at capacity. However, there were multiple economic factors in the early 80s that negatively affected the demand for JDCW products. The effect of these economic factors is evidenced in the case study by the fact that during the 1970s JDCW’s operations and equipment had been arranged to support tractor production of 150 units per day and by the mid-1980s, JDCW was producing parts for less than half of that number. One of the reasons for this negative demand shock was the collapse of farmland values and commodity prices. This left farmers with little capital through which they could purchase farming equipment. The collapse of land values had two effects. First, it caused the demand for JDCW equipment to shrink because farmers were no longer aggressively expanding. Secondly, the foreclosure of farms led to an increased supply of repossessed equipment that further reduced the market demand for JDCW’s new equipment. Additionally during this time, the high dollar value reduced U.S exports, which hurt the profitability of American farmers and therefore hurt their ability to purchase farm equipment. Management costs systems should be accurate and actionable. They should appropriately allocate the use of direct materials, direct labor, and all forms of indirect costs, or overhead, to the correct manufactured items. Divisions should also be created in order to give