Sippican Corporation Case Analysis

In: Business and Management

Submitted By kaw521
Words 843
Pages 4
Overview
The review of the financials at Sippican Corporation provided some interesting insights. Due to the apparent issues with the company’s current cost system, executives at Sippican Corp. have some decisions to make regarding the future of the company’s costing system. Appendix A offers a time-driven activity-based costing system approach to Sippican’s financial woes.
Quantitative Summary
Calculations (Appendix A) reveal that utilization of an time-based activity costing system provides a more detailed analysis of the amount of time (in minutes) each unit, or employee/machine actually uses versus the amount of time that is actually available for work. This analysis also details how much money is being wasted under Sippican’s current system. For example, none of the activities listed are being used at 100% capacity, meaning that a percentage of the dollars being attributed to any given activity are being attributed in excess. Sippican could reduce their own costs by only paying for resources consumed, rather than using a more general overhead allocation system.
Recommendations
Based on revised cost and profitability estimates, Sippican’s management team should first consider implementing a time-driven activity-based costing system. Such a system will provide clearer insight into where direct labor and machine hours are really going, making it easier to better allocate machine and labor time wherever needed. Currently, some workers are operating several of the machines simultaneously, dividing their attention, while some production workers do not operate any machines, only assemble parts manually; however, despite these differences in duties, assembly time per product is included in the direct labor-hour estimates for each product. Allocating labor and machine hours separately and where they are actually being used will paint a more accurate picture of the…...

Similar Documents

Gril Klin Corporation Case Analysis

...Gril-Kleen Corporation Case Analysis James Bayly Gallagher MGT350 University of Maryland University college Q1. What alternative methods of distribution of the product should be considered? What would be the most effective means of distribution given the present company situation? Ans. Distribution is for the facility of the customer. It makes sure that the product is available for the customer to buy when needed. The availability of any product should be inline with other variable of the marketing mix (Hisrich, Peters & Shepard, 2008). Grill-Kleen, is typically an industrial product. It is evident in the case however that its uses are far more reaching than its single current use as currently marketed by the corporation. Since the customer base is not too dispersed over a wide geographic area, Grill-Kleen, for its current market of restaurants would best be sold directly to them through a sales force. This is the technique employed currently by other big firms as well. Although it might be expensive to train and pay a sales force, this will result in higher profits and market recognition of the market. If traditional distribution channels are used, the product would then be sold at a higher price to the end customer resulting in lesser profits for the firm itself. Secondly, Grill-Kleen will have to hand over the distribution to the middlemen and risk letting go the ownership of the distribution channel. Gril-Kleen should thus......

Words: 1628 - Pages: 7

Marriott Corporation Case Analysis

...Dan Cohrs, vice president of finance at the Marriott Corporation has to prepare his annual recommendations for the hurdle rates for the firm’s three major lines of business – lodging, contract services and restaurants. He recognizes that the hurdle rates are going to have a significant impact on the firm’s financial and operational strategies. If hurdle rates increased, Marriott’s growth would be reduced as once profitable projects wouldn’t remain so. While on the other hand, decease in hurdle rates would accelerate the firm’s growth trajectory. So it is very important for Dan to make appropriate recommendations for the divisional hurdle rates as this could influence project investment decisions to a great extent. When determining the appropriate discount rate for a project, firm should understand that what investors care about is if the project earns a higher return than it could earn elsewhere on an investment with similar risk level. The appropriate beta  should be considered for a particular project and not of the entire firm because different projects in a firm can have different betas as they represent different levels of investment with different risks. Once you have the project you can use the CAPM equation to calculate the cost of equity rE as: rE = rf + *(rm - rf) where rf – risk free rate and (rm - rf) – risk premium Once cost of equity is calculated, weighted average cost of capital can be calculated as below: WACC = (1-T)*(D/D+E)*rD + rE * (D/D+E) where...

Words: 753 - Pages: 4

Gril Klin Corporation Case Analysis

...to muster in the Emergency Station. These stations have procedure that provides a simple standard organisation which will bring the ship to higher state of manning and material preparedness to deal with emergency cases. This allows the crews to clear away all the life saving apparatuses and conduct any other preparation for a successful evolution. During this procedure, different personnel carry out their duties at different stations. The removal of personnel shall be accomplished in phases, which means that crews required for specific duties are retained on board until there is no further need for their services. The decision to abandon ship is made by the Commanding Officer (CO) and the order shall be passed by any means available: loud speakers if electrical circuits are intact, otherwise by megaphone or messengers from the bridge. There are two means of abandoning ship (i.e. the removal of crews). They can be done either by using other ships that can be brought alongside or by using life rafts. If using the first method, the other ship may be brought alongside fore side or aft side. Here, the transfers of crews are done from the hangar deck. When leaving the ship, life jackets should be worn at all time in order to have them available in case the ship to which they transfer gets into difficulties. Every effort should be taken to ensure that the transfers of all crews to ships alongside are done successfully. However, if due to fires or other......

Words: 1004 - Pages: 5

Mcdonald's Corporation Case Analysis

...McDonald’s Corporation Case Analysis McDonald’s has made great strides in the sustainability of its supply chain over the past few decades. From a moratorium on soya coming from farms where Amazon rain forests have been destroyed, to developing sustainable fishery guidelines to manage fish quality and quantity, McDonald’s has taken great efforts to “do the right thing” [1]. This commitment to environmental sustainability has impacted how they source from suppliers and manage supply chain management initiatives. With all that McDonald’s has done, there is still room for improvement. Engagement in sustainability efforts with suppliers has generally resulted from a call for change from activists who were negatively impacting brand trust. Acting in the best interest of society by providing healthy food alternatives to well-informed consumers also play a vital role in how the sustainable supply chain is managed. As such, the core problem facing McDonald’s green supply chain management infrastructure is that it is still reactive in nature and will always require a trade-off between societal benefit and cost minimization. One alternative to consider is for McDonald’s to become more proactive at anticipating and managing emerging issues prior to a large-scale publicity and exposure. By doing so, McDonald’s can approach NGOs and interest groups with emergent problems, using the collaborative expertise to resolve potential hotspots before they erupt. This approach......

Words: 856 - Pages: 4

Case Analysis Cutco Corporation

...Case Analysis for Cutco Corporation Define the problem How the company could grow revenues to $500 million for the next five years with the ultimate goal of reaching $1 billion annually in a decade. Decision Factors (alternatives and uncertainties) 1) Recruiting Approaches: Recruiting is an obvious driver of Vector’s revenue growth. Additional investment is required to improve the recruiting approach. * Most of Cutco Revenue comes from Direct Sales * Use of Social media for recruiting * Recruiting students for winter and spring vacation beside summer vacation * The process is costly and time consumable. 2) International Expansion: Given the state of the present global economy, it is important to capture international market and gain some shares to make more revenue. * Cutco should gain shares in countries which are having decent GDP per capita and are U.S product friendly * International brand awareness is required * There is a high risk based on the company previous experiences 3) Supplemental Sales channels: The company should use the Internet channel beside catalogs more frequently to increase revenue. * Online shopping trend has been growing significantly * It could have negative consequences for the direct selling program * Low cost to implement this alternative Relevant Information Consumer trends: * People buy from the individuals they like, and there is no better way to make a solid first impression...

Words: 935 - Pages: 4

Case Analysis - Rondell Data Corporation

...The Rondell Data Corporation was founded in 1939. The company’s original plan was to manufacture several electrical testing devices that Bob Rondell invented while he was an engineering faculty member of a university. By 1947, the company started to make radio broadcasting equipment. During the late 1960’s, the company had increased its business to include data transmission equipment. The company was known for their high-quality innovative designs and described itself as being able to “convert problems to solutions” in their sales brochures. The organizational structure of the Rondell Data Corporation is mechanistic and did not allow for effective communication. There were many departments and layers of management, yet there was no clear integration of communication within the company. An organic structure would have facilitated widespread communication necessary for all employees to achieve complete communication necessary for efficiency (Daft, 31). The key issue in this case is the tension between the historically informal departments of ESD and Production. There has been a relatively high amount of turnover in the ESD department. The production department is rather isolated and there are tensions over a lack of respect among the departments regarding quality control. Forbus’ ESD department is scattered and he has difficult time distinguishing himself as the leader; there is low morale among his employees. The company should revisit their organizational design...

Words: 313 - Pages: 2

Materials Technology Corporation Case Analysis

...I. Industry Context Industry Overview Industry Summary and Outlook Ceramics Engineering-- the industry that Materials Technology Corporation, or "MTC" is a part of-- is a multi-billion dollar a year industry. Because ceramics can be manufactured to have unique combinations of strength, weight, thermal and magnetic conductivity, and deformability, they have countless uses in industries such as aerospace, biomedical, automotive, and electrical. With an unlimited number of such combinations, it is possible to create a material that exactly suits a given situation. Because of the following combination of factors, there is generally "high demand and low supply" for engineered ceramics: • low cost (once developed) and high quality • An infinite number of potential materials combinations • Applicability of a specific unique ceramic to each use (i.e., increased demand for closely-specified material). Similarly, several factors indicate that the ceramics market is essentially still an emerging market: • the relative newness of the industry; • the need for MTC and other such companies to create the market for their products; and • the unlimited number of potential applications indicate the ceramics industry However, one source1   indicated a few trends that evidence a more mature market: • increased pricing pressures on ceramics manufacturers; • improvements in process engineering; • increasing focus on customers in...

Words: 4781 - Pages: 20

Case Analysis of Enron Corporation

...Case Analysisof Enron Corporation In: Business and Management Case Analysisof Enron Corporation Name: Janet P. Cambangay Section & Year: BSBA-I Teacher: Sir Zadrack B. Fiel Subject: Management 1 Time Session: 2:00pm-5:00pm 07/23/2011 Weekend Class CASE STUDY I. TIME CONTEXT Regular Staff Meeting (TODAY) II. VIEWPOINT The different considerations being made by every section which results the 40% failure rate in selecting supervisors. In regards, with this, the department manager stabilizes that having a best technical people is just a trouble. It may only lead people to spend their time for technical works only which caused incompetency to manage. Second, is that the basis of seniority will only ignores everything learned about managing and it is unrealistic that the when the candidates get the job he will become capable and proficient in management. III. STATEMENT OF THE PROBLEM The poor quality of the twenty supervisors reporting to the section heads due to poor record in selecting good supervisors. IV. OBJECTIVES * Supervisors must have a high standard in terms of their performances, knowledge and skills in business management. * The promotion of supervisors must base with their capabilities and unique approach to their responsibilities in managing the business. * An excellent supervisor must gain the skills in management, technical and conceptual skills of business supervision. V. AREAS OF......

Words: 318 - Pages: 2

Sippican

...What-If Analysis and Activity-Based Budgeting Forecasting Resource Demands Excerpted from Time-Driven Activity-Based Costing: A Simpler and More Powerful Path to Higher Profits By Robert S. Kaplan, Steven R. Anderson Harvard Business Press Boston, Massachusetts ISBN-13: 978-1-4221-2227-3 2227BC Copyright 2008 Harvard Business School Publishing Corporation All rights reserved Printed in the United States of America This chapter was originally published as chapter 5 of Time-Driven Activity-Based Costing: A Simpler and More Powerful Path to Higher Profits, copyright 2007 Harvard Business School Publishing Corporation. No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior permission of the publisher. Requests for permission should be directed to permissions@harvardbusiness.org, or mailed to Permissions, Harvard Business School Publishing, 60 Harvard Way, Boston, Massachusetts 02163. You can purchase Harvard Business Press books at booksellers worldwide.You can order Harvard Business Press books and book chapters online at www.harvardbusiness.org/press, or by calling 888-500-1016 or, outside the U.S. and Canada, 617-783-7410. chapter five WHAT-IF ANALYSIS AND ACTIVITY-BASED BUDGETING Forecasting Resource Demands the full benefits from Time-Driven ABC only if they adjust the supply......

Words: 7486 - Pages: 30

Modern Materials Corporation Case Study Analysis

...Modern Materials Case Study – III-7 In 1991 through mergers and acquisitions Modern Materials, Inc. was established. They manufacture products that are used as raw materials by large manufacturing companies and the construction industry. After the merger in 1994 in an effort to retain both Information Services, they outsourced the department to STC. Woodson was hired in 1995 to help improve the company’s competitive position and profitability. His plan was to improve customer service by improving supply chain management. Modern Materials, Inc. Information Services staff were all hired by STC as a part of the contract. Except for the change in management in Information Services, other operations remained unchanged. Harvey Wooden was hired in 1995 as vice president of quality by Modern Materials, Inc. His aim was to improved Modern Materials, Inc. customer service thus improving the company’s competitive position and increasing profit. In 1996 Woodson proposed a Supply-Chain Management System Project that would significantly improve its business processes and fully support the company’s information systems. The project got approved in 1998 and was scheduled to be completed in 2001. Woodson outsourced the project to a company named UCA. UCA began to lead the project and define the requirements and program specifications for the new system. The project was expected to cost $60 million. However, just as the project got started the industry was hit with a downturn, and...

Words: 1388 - Pages: 6

Chocolate Confections Corporation Case Study Analysis

...Mike Falkenstein FINA 4210 Dr. Matt Blasko 8 February 2013 Chocolate Confections Corporation Case Study (1) Provide an Executive Summary (2-3 paragraphs, overview) of the situation and the issues. The Human Resource Department of the Chocolate Confections Corporation has enlisted the services of the Forrester Consulting Group in selecting a new software package that will place them at the forefront of the human-resources/payroll computing community. With the implementation and integration of a new software system, the HR Department hopes to gain a more user-friendly system that will streamline HR and payroll business processes. The vice president of the Human Resources Department, Monica A. Bentz, appointed a “working committee” to review the issue of replacing the HR department’s software package. Based on a cost-benefit analysis conducted by Working Committee and the representatives from the Forrester Consulting Group, the decision has been made to replace HR’s existing software with a package offered by HumanAssets Incorporated. Rather than installing new equipment, HumanAssets has created a plan for integrating the new software into HR’s existing system at a reduced cost in comparison to the other potential software packages. Over its five-year life, the project is estimated to have a net present value of $2.7 million. The vice president of HR approved the project. Thus, the project was approved without corporate scrutiny because its cost was less than $500,000, the......

Words: 1260 - Pages: 6

Skil Corporation Case Analysis

...Skil Corporation The acquiring company Emerson had a strategy of producing low cost and high quality products. It started on a program of acquisitions to meets its aggressive goals of growing sales 15% annually. It had acquired only financially successful companies. But in 1979, it acquired Skil Corporation, a financially mediocre and low performing company for $58 million. Skil was a leading manufacturer of portable power tools serving the professional and consumer markets, the circular saw being the strongest and best seller amongst those tools, which it also invented, and was amongst the top three in power tools market share holdings in U.S. Other power tools that Skil manufactured included mid-priced drills and roto hammers. Skil manufactured multiple different models for different countries, depending upon the local needs of the market. Under increasing competitive pressure, Skil’s financial results had not been high and attractive, although reported profitability had improved in recent years. It sold through all distribution channels but was well established in hardware stores and had a strong position in circular saws in contractor supply channels. Its sales force serviced all distributors except the mass merchandisers. Skil seldom advertised and relied more on product publicity. It sold tools on a worldwide basis, with its greatest international strength in Europe. Emerson has a task at hand to improve the market share of Skil Corporation given that the industry is......

Words: 1208 - Pages: 5

Sippican Case

...------------------------------------------------- Sippican Corporation A manufacturer of hydraulic control devices – valves, pumps & flow controllers. Currently the company is undergoing a severe economic impact from price cutting in pumps one of its major product lines. This has led to decline in its profits in this line of business – (as illustrated below) | Sales | 1847500 | | | | Variable Expenses | 809000 | | | | Contribution | 1038500 | 56.21% | | | | | | | | Machine related expense | 334800 | | | | Setup Labour | 117000 | | | | Receiving & production control | 15600 | | | | Engineering | 78000 | | | | Packaging & Shipping | 109200 | | | | | | | | | Manufacturing Overhead | 654600 | 35.43% | | | | | | | | Gross Margin | 383900 | 20.78% | | | Other Expenses | 350000 | | | | Operating Income (pre-tax) ROS | 33900 | 1.83% | | The company’s gross margin is expected to be 31% whereas as shown in the exhibit it is currently at 21%. Return on sales is 1.8% which is far below the target of 15-20% that the company has been realising in the past. Sippican had recently raised the price of its flow controllers by more than 10% but yet failed to achieve any good financial results It operates at a simple cost accounting system that directly charges each unit of product for its direct labour and material cost (exhibit 3) * Material cost is based on the prices paid for components under annual......

Words: 914 - Pages: 4

Sippican Case Study Scm

...1. Given some of the problems with Sippican’s cost system, should executives abandon overhead assignment to product entirely and adopt a contribution margin approach? Why or why not? The overhead spending is greater than the direct labour costs or the direct material costs for all three product lines- Valves, Pumps and Flow Controllers (Exhibit 2). Overheads are simply charged at 185% constant for three diverse products. The fact that there is huge variance in the number of units produced per production run- it is 375 for valves and 18 for flow controllers per production run. This shows the reason for high overheads cost too. Hence it calls for checking the cost allocation system of the company. Since Sippican produces three different products which comprise of different components, processes for all three need to be customised and refined to bring in any kind of standards. Variations in batch size owing to the machining constraints etc. are brought in by a disparity in the time required for production runs of all three products. Even on increasing the price of the flow controllers the demand for the product did not go down, this gives an indication of the faulty pricing system. Because of these reasons it seems that we should check the cost allocation system of the company. 2. Calculate the practical capacity and the capacity cost for each of the Sippican’s resources: production and setup employees, machines, receiving and production control employees,......

Words: 1398 - Pages: 6

Sippican Corporation

...Sippican Corporation Questions: 1. Given some of the apparent problems with Sippican’s cost system, should executives abandon overhead assignment to products entirely and adopt a contribution margin approach in which manufacturing overhead is treated as a period expense? Why or why not? Answer: Consider Sippican is a manufacturer company with multiple products, using simple cost accounting system that directly allocate factory overhead to unit of product entirely through one single allocation base (i.e. 185 % of production run direct labor cost in this case) is although an inexpensive way while is sometimes distort actual contribution of the product. To our understanding from reading the article, Sippican is spending more on overhead than on either direct material or direct labor. Further, Sippican has considerable diversity in its product mix. Each product may contain different degree of spending on indirect or supporting resources, and high variety on product and consumer characteristics. As such, activity-based cost system is considered to be a more accurate costing of present resource that will enable Sippican to project its future resource demands more effectively. 2. Calculate the practical capacity and the capacity cost rates for each of Sippican’s resources: production and setup employees, machines, receiving and production control employees, shipping and packaging employees, and engineers. Answer: See the Q2 worksheet. 3. Use these capacity cost......

Words: 523 - Pages: 3