Sippican Corporation Case Analysis

In: Business and Management

Submitted By kaw521
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Pages 4
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.
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…...

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