Essay About Overhead Costs And Niche Manufacturing Company

Cost Accounting
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Case #2,
: back to the early 1980s, established by three entrepreneurs,
Abbott, Guidry, and Scott. They recognized an opportunity in the water purification equipment industry
and created a niche manufacturing company producing high quality brass valves. With Steve Abbotts
business sense, John Scotts established rpnlttot:~- .. manufacturing industry, and Roland Guidrys
administrative expertise; the founders 0 )ducts quickly grew their company into the
leading water purification supplier. They cllversified their product line quickly adapting the
manufacturing- skills utilized in brass valve production and began producing brass pumps and flow
controllers. sement saw it imperative to innovate and capture market share in the
manufacturllle; Vl VVa<", p~ , ..__timl components; so they invested in an engineering department tasked with research and development of new products. The company assembled the new components in their modern manufacturing facility using the same equipment and labor for all three product lines. They adopted a just-in-time delivery system, processing, packaging and shipping products upon completion. Just-in-time (JIT) production, which is also called lean production, is a "demand-pull manufacturing system that manufactures each component in a production line as soon as, and only when, needed by the next step in the production linel • In this manufacturing process, the close coordination of the work stations ease the flow of production by reducing inventory and wastage, decreasing set-up time, and meeting customer demand without inflating overhead costs. The increased competition in the industry has driven down prices forcing reconsider their traditional accounting system. Will a comparison of different accounting systems illustrate how letitors can effectively maintain offering lower prices for brass pumps? Will a comparison of their traditional costing system, a revised process costing system, and an activity based costing (ABC) system capture the differences in gross margin percentage? Brass controller, is challenged with identifying "why" sustained Cv