Aero Gear

Aero Gear – Case Analysis

Background

Aero Gear was established in 1982 and was a local manufacturer of gears for Pratt & Whitney. Later on, they went on to accommodate other customers as well as assemble gear boxes. Revenue from non domestic countries went on the decline because there was pressure to benefit the locals in their countries. Maintaining market share in their industry became an area of concern after competition started to threaten their position amongst customers. In response to increased competition, Doug Rose decided to implement new ways of production by becoming efficient and no longer adhering to a large number of work in progress inventories. Their costing systems however were not compatible with the new efficient production system and management felt like they were losing control in an increasingly competitive environment. The focus was on implanting an effective cost system that allowed them to track and maintain a competitive edge.

Issues in Consideration

The main issues in consideration are adopting a suitable costing system and enabling costs to be allocated properly. Long lead times and the fact that the shop floor has only partially assumed lean formations emphasize the absolute need for a more accurate costing system. The accounting system has barely changed even after movement towards lean manufacturing and added value is difficult to determine with the current method.

Analysis

Job costing is a legitimate issue for Aero Gear because it uses direct labor hours as its base for cost allocation. Allowing and trusting employees to be honest about their filled out time sheets means greater room for human error and ultimately inaccurate management of time. An accounting or costing system needs to be put in place to provide accurate and reliable information to make decision making easier. Due to the fact that costs are allocated based on labour hours, it might not be the most precise measure of the cost of each product.

One way...