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Bridgeton Industries

In: Business and Management

Submitted By RohitKRai
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Bridgeton Industries: Automotive Component & Fabrication Plant

Answer 1: The primary competitions for Automotive Component & Fabrication Plant (ACF) of Bridgeton Industries were local suppliers and other Bridgeton plants. The ACF sold all of its production to the Big-Three domestic automobile manufacturers. As the US automobile market was growing and was dominated by the domestic automakers, the ACF experienced a period of healthy profitability. However, in the 1980s the competitive environment began to change. The domestic automobile manufacturers were challenged by foreign competition. In addition, scarce and expensive gasoline caused a decline in the domestic market share resulting in shrinking of the production contracts. The ACF felt the heat of this competitive pressure and experienced serious cutbacks. It even had to shut down a plant that manufactured fuel-efficient diesel engines in the model year 1986. All related production jobs were eliminated and skilled trade positions were reduced where possible.

The cost accounting system currently in place at Bridgeton uses a mix of job and process costing. In order to allocate indirect costs, one cost pool (single overhead pool) system is used in which the overhead (burden) is applied to products as a percent of direct labor dollar cost.

Answer 2: The overhead (burden) was allocated to the products at ACF as a percent of direct labor dollar costs. The overhead percentage was calculated at budget time and used throughout the model year to allocate overhead to products using a single overhead pool. After oil pans and muffler-exhaust systems had been outsourced from the ACF, the overhead cost as a percentage of direct labor increased. This is because the overhead costs did not decrease at the same rate as the production volume.

Overhead Cost % (1988) = 109,890/25,294 = 434%
Overhead Cost % (1989)

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