¶ … Shirts Company
Given what you just read about the TwoShirts Company, how do you know that you are effectively achieving your chosen strategy? What steps can the decision maker take to make sure that the he is getting the right information and is interpreting it correctly?
The analysis provided in the TwoShirts Company underscore just how critical it is to engage in iterative analysis of cost constraint models, seeking to optimize cost and production strategies for specific goals. At the very minimum, there needs to be greater focus on understanding the nature of variable and fixed costs per shirt type. The shirts have a very high variable cost percentage which also adds to the lack of predictive accuracy of models as well. As a result of these unknowns it is still too early to tell if the company is still achieving its chosen strategy.
What is apparent is the need for greater accuracy and precision of data as it...
The premise of the case is that too much of a reliance on cost accounting alone can seriously degrade, even blind companies to what they need to know in order to make constraint-based tradeoffs. What is needed is a constraint-based approach to cost analysis that relies on iterative modeling including advanced simulation to determine the optimal mix of products (Souren, Ahn, Schmitz, 2005). The systems in use throughout the case stodgy lack this level of analytical depth and rigor; they are incapable of reporting the specifics of these factors with any level of precision. The job order costing systems are assuming a uniformity of cost behavior that isn't there, in addition to a stabilized variable cost level that also is not necessarily evident in the costing data as well (Williams, 1985). Third there is the need for greater levels of forecast accuracy and validity of…
