Promotions Manufacturing: Production Unit Expenses and Profitability
(5 pages of text)
Based in the Canadian Prairies, Promotions Manufacturing had been manufacturing promotional items for over 40 years. The organizational structure consisted of four manufacturing units and the administration department, each with its own distinctive staffing needs and cost structure; consequently, profitability calculations and operations management had become increasingly difficult. In June 2018, the question of how to allocate the overhead and administration costs to each manufacturing unit became a pressing concern. The different cost allocation methods resulted in diverse profitability levels. Subsequently, decision-making with regard to production priorities, operation scheduling, and staffing needs had become unsystematic, often resulting in missed deadlines and disappointed customers. The general manager had to make a decision: which cost allocation method would offer the most accurate profit centre profitability, provide guidelines in reorganizing operations, and result in higher efficiencies?
This case can be used undergraduate-level courses on managerial accounting, operational management, and cost accounting. By working through the case and assignment questions, students will be able to do the following:
- Identify the key factors involved in making cost allocation decisions at a small manufacturing business.
- Understand the operations of manufacturing units and become familiar with methods of maximizing scheduling and production efficiencies.
- Analyze the management decision-making process at a business transitioning toward higher productivity.
Canada, Small, 2018
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