Bennett Body Company, Case Study Example

The following is an essay that summarizes a case study of two different companies, which manufacture truck bodies. The main issue put forth by the case is the different cost accounting methods adopted by the Bennet Body Company and the Conley Corporation.

From the case, the cost accounting strategies used by the two body manufacturing company are different. The Conley Corporation uses the Conley system of cost accounting. The Conley Company is known to manufacture track bodies that are of standard design unlike the Bennet Company, which manufactures custom-made truck bodies.

The Conley Company produces its 12 models in quantities that are estimated by the management that would be demanded. A budget or a plan that shows the estimates of profit cost and volume of sales of the operations of the following year is prepared each year in December. The cost of different departments of the company for each of the 12 models is estimated and included in the budget.

Conley’s accounts do not calculate or find out the actual costs to be incurred in the productions. They determine the cost by adding up the estimated labour to be used at an expected wage of rate, overhead allocation that are based on the proportion of total overhead cost estimation to the total estimated direct labour in dollars and the estimated materials to be used at the cost per unit to be expected. The summing up of materials, overheads and labour estimates of each of the 12 models gets to be the models standard cost.

The strength in using the Conley system is that the management gets to know how many truck bodies of the 12 models have been worked on by every department on a monthly basis. This is because the sum of the standard cost for each department can be obtained easily by calculations through multiplying standard cost of the model by the models quantity. The weakness of this system is that the estimations made about the quantity to be produced may not reflect the real quantity that is demanded. There may be cases where there is overestimation or underestimation of the costs, profit and the sales volume.

Bennet Company uses the system where the actual costs of a model are calculated. This is because every track body that is build is unique compared to others and the accumulation of the cost is individually and not collectively as the cost differs among the models. First at the beginning of a job a code number is given to the job, and the cost for the job is collected on a weekly basis. A record of the material quantities used for a job is found on a requisition form. All labor costs are also recorded, and the workers are paid wages according to the time spent on each job. Overhead costs that cannot be linked with a precise job is proportionally allocated among all the jobs. The benefit of this system is that it allows management to know exactly at the end of each month the amount of cost incurred in building each body.

The difference in strategies used, leads to Bennet Company incurs higher costs than the Conley Corporation as it spends more in record keeping and paperwork due to the accumulation process they use. Another solution is for Bennet Company to change its period from monthly to annually. This is because it will facilitate them to know the pattern of the overhead allocation and cut down on costs of identifying and accounting for the costs incurred. It will also enable them to make decisions on a long term basis as by annually they can know the issues that affect them. The difference that may result in terms of the actual and standard costs in the Conley Company is due to underestimation or overestimation. The system that is better in controlling the costs is the Conley system. This is because the processes used in the system are less costly and efficient hence a company can cut down on its administration costs.

References

Bragg, M. S. (2010). Accounting Best Practices. New jersey: John Wiley & Sons.

Drury, C. (1992). Management and cost accounting. London: Chapman & Hall.

Eisen, J. P. (2007). Accounting. New York: Barron’s Educational Series.