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Bridgteon Industries Cost Accounting System Essay

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The managerial accounting system at Bridgeton, as it is presented, seems to be lacking detail necessary for efficient analysis. The sections used are sales, direct material, direct labor and overhead by account number, each divided into individual accounts and summed to find totals. There is no separation of fixed and variable costs in any of the accounts, making it difficult to analyze exactly where operations are costing money and, therefore, how they could possibly be improved. The presentation of the information groups all sales together and the different categories of costs together and does not provide for individual product analysis. The products are analyzed (categorized into classes) based on their costs, with no consideration to revenues associated with these products, and no real understanding of the overhead applied to each product. The overhead costs are applied to accounts based on labor and materials of the company as a whole, rather than using considerations associated with the individual products.
The presentation of the material is in dollars only. Overhead is applied to products as a percent of direct labor dollar cost. Factory profit for each year is found by subtracting direct material, direct labor, and direct overhead costs from total sales. The overhead percentage is calculated at the same time budgeting and is applied as a single overhead pool throughout each model year. The consulting company used 435% of direct labor costs in 1987 for their study; the budgeted was actually 437% (OH/DL=107,954/24,682). A similar percentage applies in the following year (109890/25294=434.5%). However in the next two years, after the outsourcing of oil pans and mufflers was enacted, the allocation of overhead in...


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... doors and manifolds. Mufflers directly contributed $28,911 in 1987 and $30,975 in 1988 and oil pans contributed $36,997 and $39,566.
To improve the system at ACF, these numbers need to be considered. A product line should not be eliminated simply because it is not world-class; if it is still contributing, it is probably a positive product, assuming it is not hurting the image of the company significantly. It is difficult to determine exactly whether it is contributing because we do not know the fixed and variable portions of manufacturing overhead. Employee interviews coupled with regression analysis using data from multiple years, possibly without the outsourcing disruption, could help to effectively estimate these costs. It is always dangerous to make produce/outsourcing and other decisions based on allocated manufacturing overhead if it is not handled properly.


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