Case Study 18-1 Huron Automotive Company

18-1 Huron Automotive Company

The Huron company was has just been asked by its president to have a recent business school graduate, Sandy Bond, to review the company's present cost accounting procedures. Sandy is already an employee of the Huron Automotive company in there accounting department. When outing this project to Sandy, Huron's president expressed three concerns about the present system. The first was its adequacy for purposes of cost control. The second is its accuracy in arriving at the true cost of products and the third is its usefulness in providing data to judge supervisor’s performance. Huron is a relatively new company compared to its competitors in the automobile and truck parts industry.

Sandy began the cost accounting study in Huron's carburetor and fuel injection division which accounts for over 40% of Huron's sales. Huron has many sub category in fuel injection division on of which is the casting ans stamping department, where they produce cases, valves and certain other parts. The other divisions include the machining department, the casting and stamping department, the assembly department, and the grinding department. So by the time a costumer as a product in hand it has passed through 5 different departments. Sandy has found that with the exception of material costs, all products costing was done based on a single plant-wide labor hourly cost. This cost was found to be $55.96 in July. But it only makes sense that each department has its own hourly costing rate. If that were the cast time and hours charger would lead you to the labor charge and overhead cost. After all cost are add we will have the cost of the batch and could easily find the cost per item by dividing. After finding the difference that this approach would have on the product cost you need to keep in mind all of the extra overhead items including heat, electricity, property taxes and insurance.

In order to find concrete number Sandy decided to apply this new...