CASE STUDY

SFS
CASE HISTORY:
The Spare for Ships Company (SFS) has a specialist machining facility which serves the shipbuilding
components market. The current job-costing system has two categories of direct cost (direct materials
and direct manufacturing labour) and a single indirect cost pool (manufacturing overhead which is
allocated on the basis of direct labour hours). The indirect cost allocation rate of the existing job-costing
system is $120 per direct manufacturing labour hour.

ISSUED AT HAND:
ABC to recognize goods and others that are not value-added practices. This takes tactical
decision-making. The latter will be reduced. Goods and services that take longer than others
will be checked to develop the time required.
FACTS AND FIGURES:

The Visibility Consulting Partnership (VCP) recently proposed to redefine SFS' work costing
framework using an activity-based strategy. VCP suggested maintaining the two types of
relevant expenses. VCP suggested that the actual indirect-cost pool would be supplemented
with five indirect-cost pools.
Each of the five indirect-cost pools is an operation field in the SFS plant. Every field of operation
has its own boss accountable for the operational expenditure.
ALTERNATIVES:
When the product design has been formulated, SFA must assess the price the consumer is
willing to pay (this may be achieved by comparing the goods that are currently affordable, or by
doing market research). To order to determine the expense goal, SFA will instead deduct a goal
gain from the sale price.
If the expected cost, including any expected costs reductions, for this product already meets
the target cost throughout its life cycle, then production can begin. If the estimated expense is
greater than the goal expenseChanges to rising prices are made in order to meet the desired
amount. Unless the goal expense can not be met by SFA, the drug must be discontinued.

1|Page
RECOMMENDATIONS:
It is therefore just a point of departure. The company administrators would have to look at time
consumed (activity areas) to determine whether the positions are worth keeping, whether they
may have to settle savings for the refresh teams or whether they need to. Boost own recharges
or margin-maintaining rates. Nonetheless, consumer demand can also be impacted.
Kaizen charges may be added by SFA like this. The real cost of output for the preceding year is
the financial source for the cost of production for the present year. A discount rate and a
discount is established. Present output is contrasted and variances are tracked against the goals
of Kaizen throughout the year. The current actual cost at the end of the current year becomes
the next year's cost basis. New (lower) Kaizen objectives are established and the entire process
is resumed.

2|Page