John Deere

Topics: Cost accounting, Cost, Price Pages: 3 (556 words) Published: April 4, 2013
John Deere and Component Works Case Analysis

Section 4 - Group 4

Bhavik Kaul - FT 13418
Bindu Nandigama - FT 13419
Danish Ahmad - FT 13420
Debanjan Rudra - FT 13421
Divya Ananthram - FT 13422
Garima Narang - FT 13423
Gaurav Bhandari - FT 13424

1.What is the problem in the company and why is the business not growing?

The John Deere’s Equipment Division had set up a component division called John Deere & Component Works (JDCW). The John Deere and Component Works (JDCW) was the division that produced various parts and equipments which were complex.

A few of the reasons for the business to be stagnant in the company were:

As the demand for tractors had reduced it had resulted in a lot of unused inventory and unutilized manufacturing plant. These plants were meant for large scale production and the reduction in demand led to wasted resources.

The company repeated failed in acquiring contracts through bidding. The company followed the standard cost allocation system, and quoted higher prices than the competitors. The standard cost allocation system did not calculate the production costs in an accurate manner, when there were a variety of products / product parts designed now by the company.

Cost of Production was high. Therefore the pricing had to be laid in accordance with the high costs. This led to problems as the competitors products were priced lower and gained an advantage over price sensitivity.

2. Compare and contrast the merits and demerits of the current cost system and ABC system.

Features & Merits of the Current Cost allocation method:

Simple to comprehend and use
The direct costs, machine hours and direct labour hours were used for overhead calculations. •The above factors were calculated on a long term basis.
Suitable for manual process of production

Demerits of the Current Cost allocation method:
Sometimes production volume was not long term...
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