Stewart Box is a packaging company that manufactures paperboard and cartons. Its paperboard division sells to external customers and supplies raw materials to the carton division. Outlined in the case are the planning and control systems that Stewart Box has in place.
The paperboard mill and the carton factory were profits centers, where 10 of the 15 production centers under the carton factory are production cost centers while the remaining 5 are service cost centers. The company had a job-cost accounting system.
Mr. Stewart, company president scans the reports. He likewise done close attention to several external reports he received regularly from the industry trade association. It showed current trends and its effects on the industry and sales orders, production volume and other related statistics for all members of the association.
The researcher provided recommendations through plan of actions on how to improve the control systems and planning processes of Stewart Box. Stewart Box is a profitable medium-sized manufacturing company that has several areas for improvement in its accounting, planning, budgeting and pricing methods. The group highlighted these weaknesses and gave proposals as to how the company can significantly improve its operations.
II.POINT OF VIEW
Mr. Robert Stewart - President of Stewart Box Company and a large stockholder
III.ISSUES AND CONCERNS
➢ The paperboard and carton industry is characterized by strong competition because of the potential overcapacity that exists in most plants. ➢ Due to overcapacity, competition for large orders is particularly keen and price cutting is common. ➢ Stewart Box seldom uses contribution pricing for carton orders that were insufficient in number to keep the board mill working.
IV.STATEMENT OF THE PROBLEM
In view of external factors distressing the industry, what innovative measures and present management control actions should be agreed to and enhanced by Stewart Box Company to carry on the challenge of strong competition?
1. To affect and execute new management control measures. 2. To move toward up with ways and set fresh constraints to improve current company practices. 3. To make certain the current competitive and earning position of the firm.
V.AREAS OF CONSIDERATION
➢ Stewart Box Company is recognized in the industry for its excellent reputation for product quality and customer service. ➢ The business prepares a five-year plan, which is revised annually based on the previous year’s piece. ➢ Manufactured paperboard is charged to the carton factory at a transfer price that included standard cost plus a standard return on the assets worked in the board mill. ➢ Standard unit costs and overhead rates were modified if necessary so that these were reliable with the approved budgets. ➢ In about five years the business conducts an appraisal of each feature of its overall operations. ➢ Balance to the pricing formulas set by trade associations, 65% of the time the company’s prices are higher and only 15% lower as against to its competitors.
1. The preparatory cost from the board mill was moved immediately at cost. In distinction, it is set in their accounting policy that transfer prices has to be on a cost-based method that supposedly adds a lump sum or mark-up percentage to cost. 2. In observe, the company performs a review on every component of the business every five years, despite of the fact that the firm applies 5-year planning with annual revisions. 3. Despite the fact that the industry, in general is demonstrated by tough and hard competition, Stewart Box’s pricing is often higher (65% of the time) and only 15% lower compared to its competitors. 4. Even though, contribution pricing was not used often, this practice may result to cumulative loss in the production profit center in producing...