Case discussion: general thoughts and ideas

Superior Manufacturing Company

The case study of Superior Manufacturing Company is discussed in detail. Some key questions are tackled in this paper which is related to the case study on hand. The costing system is evaluated in detail and recommendations are suggested to the management for improving the performance of the company.

Question No.1:

For Superior Manufacturing an effective costing system was absolutely essential because the changes that were made in the management structure. For two years consecutively two different managers were leading the team. They both were not familiar with the way the operations were taking place in the company and had different approached to dealing the situation. Another important aspect to consider is that the company is operating in a rigid nature of business. They are faced with fierce competition from players that are larger in scale than the company and have a sound financial backing to support them unlike Superior Manufacturing Company. In such a situation the management had only one option to lower the costs of production and show greater flexibility in its operations and margins. An effective cost system played an integral role for the management to lower the costs and make decisions to find the right balance between cost and value.

The managerial purposes that are to be served by an accounting / cost system are not sufficient in the case of Superior Manufacturing Company. The processes of the company are all horizontally integrated and the information provided by the current costing system is aggregated, brief and unpunctual to address the accounting issues. The company was using the same accounting system which it was using in the past years in order to take short-term decisions and develop a long-term goal after some time, and to control processes and activities by controlling the costs and continuous evaluation.

Question: 2

There are a number of imperfections in the costing system however it is serving some purpose to the management. The main strengths include that the costing system is a full cost system which gives a clear picture of the costs associated with the products and the processes and differentiates the indirect costs. Punctuality is a key feature of this costing system. The costing system does not involve high costs in preparing the statements. The data provided by the costing system is easy and simple because it is straightforward and to the point which makes it easy to understand.

If we look at the weaknesses of the costing system then we would find a number of problems in it which is a major constraint for the company in achieving their strategic goals. There is an inaccurate allocation of costs which creates confusion in the full operating cycle. The straightforward information is limiting the view of the superior management who are unable to take key decisions on the basis of that data. There is also a lack of information that could be considered as meaningful information for the management to take risks and gain profits.

Question No.3:

There are a number of suggestions that could be made to the management of the Superior Manufacturing Company. The most urgent recommendation to the management would be to improve their current costing system. They need to make their costing system efficient and if they are able to do so that will also reflect in their annual statements. For the time being they would need to divide the costing system in different levels. Each level would cater to the level of management hierarchy and provide them with the required information that is relevant to them.