Stewart Box Company

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Flow Of the Presentation

Brief SummaryStrategic PlanningIssues & ConcernsAnswer 1Answer 2Answer 5

Strong PointsSuggestions

SBC - Brief Summary

Well established packaging company manufacturing both paper cartons & boxes

Paperboard & carton industry- characterized by strong competition because of potential overcapacity in most plants

High quality products

Marketing of products within a radius of 500 miles from factory

Various costs like labour & factory o\h costs were apportioned annually

Budget was prepared by each responsibility center head.

Pricing policy followed was flexible depending on competitive conditions & design work

Contribution pricing was also practiced on some occasions to keep mill busy

Company followed job costing method using standard costs

Strategic Planning

Visionary outlook (larger space for warehouse)

NPV method for the purpose of capital acquisition

Purchase of new assets on periodic basis (eg. printing press)

Designing special boxes to customer specifications

Periodic review done on each facet of its operation ( Experts for Production)

ISSUES & CONCERNS

External Issues -

Paperboard & carton industry- characterized by strong competition because of potential overcapacity in most plants

Due to overcapacity, competition for large orders is particularly keen & price cutting is common

Internal Issues-

Only President, Vice President Marketing & Controller involved in discussing & finalizing sales estimates for Budgeting

Control system is based on the business units, not on the organizational structure. Difficult to pinpoint the source of the variances

Vague Distinction between task control and management control.

Job-costing requires fixed costs to be allocated to each job. If allocation incorrect then costing goes wrong & same will be passed on to customer or carton division

The products are marketed within a radius of 500 miles

Answer 1

(a) Board Mill & Carton factory

(b) $ 724.34

(c) If inventory level in Dec varies then it will be difficult to determine the profits of carton factory as there is interdepartmental transfer

(d) $ 86(Dec.) & $ 760 for year 1993

(e) Above the standard level

Answer 2

(a) $ 9416

(b) 16,847 – 830 = $ 16017

(c) $ 16847

Answer 5

Strong Points –

• Differential Pricing Policy

• Customized Production

• Meeting delivery deadlines

• In-House Raw Material Supply

• Factories are located near to each other, so transportation cost is also saved

• Company has well establishes strategic planning & Periodic Reporting

• Reporting system – exhibit 4 such that president can easily see which of his divisions are making money

Suggestions…

Separate strategic tasks from functional tasks for better accountability & implementation

Periodic review of job cost to be allocated to labour & machine hour rate on frequent (monthly or quarterly) basis rather than yearly

Encourage sales force to tap other markets and new customers to fulfill volume requirement

Separate two manufacturing departments in order to allocate expenses related to sales, marketing, finance, HR