Managerial Accounting: John Deere Component Works.
John Deere Component Works (JDCW), subdivision of John Deere and Co. was in charged specifically of the manufacturing of tractor component parts. The demand for JDCW’s products had problems due to the collapse of farmland value and commodity prices. Numerous and constant failures in JDCW’s competition for bids, alerted top management to start questioning their current costing methods. As an outcome, the analysis has to be guided to research on the current costing methods with the intention of establishing legitimacy and to help the company in adopting a more appropriate costing system.
Q1. How did the competitive environment change for John Deere Company between the 1970 and 1980?
• Sales increased through 1982 but then started to decline. • Deer adjusted its level of operations downward, cut costs where possible, increased emphasis on pushing decision making downward and restructured manufacturing processes. • Deere took floor space out of production, reduced personnel by 38.5% (right-sizing), encouraged early retirements, and did not replace most of those who left. • To improve their operations and to make a more efficient flow through production they separated three subdivisions: Hydraulics, Drive- Train Division, & Gear and Special Products division. • The collapse of farmland values and commodity prices in the 1980's increased the competition. • The high dollar reduced US Exports, therefore hurting both American farming and American Farming manufacturer producers.
Q2. What caused the existing cost system to fail in the 1980's? What are symptoms of Cost System Failure?
• The fact that John Deere had previously been using a Standard Cost System which both understated and overstated the cost of certain products that they produced. • This cost method does not provide the best system for JDCW’s cost allocation. By using only three overhead...