Superior Manufacturing Company Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Superior Manufacturing Company Case Study Solution

The higher variation is recoded in the expenses such as rent, general administrative, depreciation and indirect labour. The variation that arerecorded in these expenses are 19, 9, 46 and 15 percent respectively of overall variation. Through the standard accounting system, the company would enable to forecast the budget that will utilize throughout the year.

The data provided in Exhibit 4 was very useful for the company as it determined the costs which were favorable and unfavorable to the costs structure and the foundation of new standard costing system introduced to the company. Moreover, this data was used for analyzing the performance of cost structure, valuation of inventories and for preparing budgets for coming years. This data would help the company to make more favorable decision and determine the unfavorable costs and eliminate them in order to generate more profitability. However, this half yearly profit is only because of the larger number of product 102 and 103 units sold during first half of the year and market conditions show that the sales of the whole industry would be weak during the second half of 2005,because the weakening industry during the second half of the Superior Manufacturing Company would not be able to sell enough number of units of product 102 and 103 to meet the same last years’ sold quantity. Moreover, the decreased number of sales unit will generate lower contribution which will not be able to cover the fixed cost during the second half of 2005, therefore; it can be said that Superior Manufacturing Company’s profitability during the first half of 2005 is temporary and in second half of 2005 it might be possible that the company would recoded losses in the next quarter.

Why is it important that Superior has an effective cost system? What is your overall appraisalof the company’s cost system and its use in reports to management? List the strengths and weaknesses of this system and its related reports for the purposes management uses the system’s output. What recommendations, if any, would you make to Waters regarding the company’s cost accounting system and its related reports?

Importance of Effective Cost System

It is important to have an effective cost system because it is a need in today’s dynamically changing scenarios. An effective cost system is considered to be critical to superior’s success. In today’s dynamically changing manufacturing scenarios, the company has litter control over the sales, demand of industry and variation in the selling prices. The cost accounting system provides the key financialmanagement data for the decision. Moreover, an effective cost system helps the management in understanding the cause of variances so they can take timely actions to control variances.However, Superior Manufacturing Company operates in non-growing, highly competitive market where low cost products are the key for success. Consequently, management of Superior Manufacturing Company needs an effective cost system in order to control the cost and offer its product at lower price than its competitors to slice the market share of its competitors.The company is facing loss and strong competition for many years. Moreover, some strong decisions have also been made in few years. Therefore, it is very important for the further establishment of the company to make effective decision which is favorable itself and for its future. As it has been operating in a competitive market and facing loss from last few years, therefore, development of effective cost system is very important for the company to generate profits and facilitate company with growth and prosperity.

Appraisal of the Company’s Cost System:

To appraise company’s cost system, it is very important to analyze which costs are necessary for the products. Moreover, the overall growth of the company as well as per product growth of the company should be analyzed. Consequently, as Product 103 is costing high andgenerating less revenue it should be immediately dropped in order to save company from further loss and an inefficient use of resources. The standard cost system is favorable for the company to some extent. Following are the strengths and weaknesses of the costing system:

Strengths:

Provides favorable and unfavorable costing relating to the company’s development of respective products.
As it anticipates with the actual costing of last year’s product selling price, if all other subjects remain same, the prediction would be 99% correct.
The system is simple and easy to use.

Weaknesses:

It is ignoring the facts and risks that existed over the years.
Standardized finished goods were analyzed for further prediction, difference between products is ignored.
Unfavorable variance among standardized and actual costs can differ and would set higher costs.

As the company’s cost accounting system is taking company towards profitability and making cost system better than before, therefore, it is recommended for the company to take this strategy forward to make the profitability consistent and promising future.

Conclusion

On the basis of above analysis, it is concluded that the company should change it cost system in order to maintain its competitive position in the market with the continuation of the product 101. The company might outsource its product line in order to improve its profitability...................................

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