The Stewart Box Company

EXECUTIVE SUMMARY

The Stewart Box Company is a profitable company with a functional structure in place as well as identified responsibility centers. The company has well established strategic planning, cost estimates and costing procedures. In an industry where competition is tight due to capacity requirements in manufacturing plants, the company was able to tap the market for custom- made carton boxes. However, its market is still limited to within the 500mile radius of its manufacturing site, thus 15% of the time the company has to under cost to be able to fulfil the volume requirements for its operation, and 65% of the time they are priced higher than their competitors. Furthermore, cost estimates established based on the previous year’s data were used to cost custom-made jobs which do not accurately capture actual costs spent for the job orders. To address these issues, the company has to put in place measures to encourage its sales force to tap other markets and new customers to fulfil volume requirements, as well as revalidate its costing procedures to include activity based costing, which will better capture costs spent on job orders, and ultimately improve the company’s bottom line.

CASE CONTENT

Stewart Box Company is a medium-sized packaging company that manufactures paperboard cartons and boxes. It is a profitable in its operation having distinguished itself from the competition by offering custom made boxes and delivering on time. The company is functionally structured with identified responsibility centers. However there are still areas for improvements such as in accounting, budgeting, planning, and pricing system.

Strengths and shortcomings were identified, and proposal on improvements were highlighted in the Analysis section of this report.

PROBLEM DEFINITION

In an industry where competition is tight for volume orders, Stewart Box Company has established its niche market in custom made boxes for his clients. However it has limited its market to within the 500 mile radius of his manufacturing plant resulting to underutilized capacity of his plant. Further, the job costing procedures in computing for job order costs are estimates based on the values from previous year but based on industry prices, his prices are higher 65% of the time.

THE FRAMEWORK FOR ANALYSIS AND AREAS OF CONSIDERATION

Evaluation of the current structure, control systems and strategies to identify cause of the defined problem. Areas of consideration is the market penetration, capacity utilization and costing system. Proposal of improvements in the system will also be presented in the decision portion of this paper.

ANALYSIS

Answers to Questions:

1.

a. A transfer price was used in connection with two items. What are these two items? Paper Board and Carton.

b. Assuming that inventory levels did not vary in December, what was the actual Cost of Goods sold manufactured in the carton factory? (Actual COGS) 787,000 – (Variance) 29,000 = 758,000.

c. Why is the assumption in question b necessary to answer that question? Because variation in inventory is added into the computation of cost of goods sold

d. What is the budgeted amount of corporate expense? $86,000.

e. In December was activity in the board mill above or below the standard volume? It was above standard volume.

2.

a. What was the actual cost of labor – pressmen? $9416.

b. What was the budgeted amount of total controllable cost? The budgeted amount of controllable cost was (Actual Amount) $16,847+ (Variance) $830 = $16,017

c. What amount of total controllable cost was applied to products? (Labor-pressmen) 9,416 + (Labor-helpers) 3,318 + (Press Supplies) 597 = 13,331

d. Why do no amounts appear in the spending variance column for departmental fixed costs and allocated costs? No amounts appear in the spending variance for departmental fixed costs and allocated costs because they are non-negotiable fixed costs.

3. As his assistant, write a memorandum calling Mr. Stewart’s attention to matters you think he should note when he reads Exhibit 4.

MEMORANDUM TO: Mr. Robert Stewart

FROM: Assistant