Using different forms of costing, our system, Bennett Body Company’s System, and Conley’s System end up having a difference with regards to the cost of paperwork and to record keeping. According to my analysis, Conley’s system comes with lesser economic costs as compared to ours because they accumulate costs for each of the four direct departments of production and service departments. Their system produces standard designs and that is why it is possible to accumulate costs for all jobs. Our system produces custom products hence the reason behind cost accumulation for individual jobs since each job is unique and requires unique materials for a particular job.
The exhibit below shows that Conley’s system experienced some difference between the actual and standard costs.
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The actual cost being more than the standard cost presents an unfavorable condition of the company. There are so many possible reasons behind this and these reasons are based on activity and also based on price and efficiency of usages. The cost differences could have been seen in the sales volume, sales prices, material price, material usage, labor rates, and labor efficiency (Potential causes of variances, 1 March/June 2017) .
Possible reasons for the cost differences is analyzed in the table below (Potential causes of variances, 1 March/June 2017) .
| Type of variance | Possible reasons for cost difference |
| Sales volume variances | Unfavorable economy, reduced advertising, a lot of competition, and having higher selling prices. |
| Sales price variances | Decrease in prices planned by the company, decrease in prices in the market, and competition. |
| Material price variances | Rise of prices in the market, purchasing of materials that are of higher quality, and poor buying of the materials. |
| Material usage variances | Poor management of materials and having materials that are of lower quality. |
| Labor rate/prices variances | Rise of labor rates in the market, having the availability of higher quality employees, and poor negotiation. |
| Labor efficiency variances | Having poor training of people, lower quality materials hence inefficiency, and having machinery that is poor in that it keeps breaking down. |
For the purposes of budgeting, Conley develops the standard cost of factory overhead for a particular model. This can be calculated by using the estimated materials cost per unit and the estimated total overhead costs since the two are highly correlated. The formula is thus:
Overhead for a particular model = total overhead costs / estimated materials cost per unit
Our period for determining an overhead allocating rate is monthly and I think it should stick at that and not be changed as to happen in annual circles, as has already been suggested by the Company President. This is because overhead costs are not constant and can be affected by several factors, making them complicated to calculate over a long period. One factor is that we deal with new products now and then due to our production of custom products. This will definitely bring the differences in terms of overhead costs. The second factor likely to cause changes in overhead costs is inflation. Government regulations can also affect overhead costs. The type of contract is another factor in that some work comes in large amounts while some other work comes in less amount. Lastly but not least, the complexity of orders can also be another factor since some projects are more complex than others.
Looking at the two systems, Conley Company’s system is better from the standpoint of controlling costs. Conley system does the department-by-department estimation of costs as compared to our system, which makes the overall estimation of costs. The reason as to why Conley system is better is that each department is kept responsible, or rather accountable for how costs are handled. In our system, it would be difficult to know who is responsible for what.
In conclusion, I would recommend that Bennett Body Company should change how it is controlling costs and adopt Conley Company’s system. As discussed above, their system promotes accountability, hence will reduce the present unnecessary work of analyzing accountability in the small company units since cost estimations are done on individual jobs.
References
Hansen. (January 29, 2016). MEASURING OVERHEAD;TAG: FACTORS AFFECTING COMPANY OVERHEAD. HANSEN'S KAMMER .
Potential causes of variances. (1 March/June 2017). OpenTuition.Com .
