Tees - Case Data

Tees - Case Data - TEES @ TUGUN M anufacturers of surf gear...

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Manufacturers of surf gear Established 1960 The firm Tees @ Tugun (Tees) is a manufacturer of items of surf gear. What began as a small family business producing T-shirts only has now grown into a firm with a large and very popular product range. This case focuses on the T-Shirt Department which produces three top-quality lines – Beautee, Vanitee and Mightee. Some of the firm’s products have a relatively short lifetime. It is quite possible that styles popular in one period are out of fashion by the next period. This is the case with the firm’s T-shirts. Costing system currently used The firm accounts for its products using standard absorption job costing, applying overhead to products using a plant-wide rate based on direct labour hours. Materials purchases are recorded at actual cost. Work in process and finished goods inventories are recorded at standard cost. All cost variances in the period are transferred to cost of goods sold at the end of the period. This existing costing system was established when only one line of board shorts was produced and when overhead was a significantly smaller proportion of total cost than it is now. Materials for T-shirts are fabric, cottons, and depending on the styles, zippers, buttons, Velcro and logos. At the present time the only material which is traced directly to the product is fabric. Cottons, buttons, zippers, Velcro and logos are treated as indirect materials (overhead). All on-costs on manufacturing wages are treated as indirect costs (overhead). Standards are determined at the point when the product is initially designed, and are regularly updated to reflect all changes in the manufacturing process. The firm prides itself on its very efficient labour force, and in the past the T-shirt Department seldom has cost over-runs due to labour inefficiency. In the period which is the focus of this review two changes have been made in the manufacturing process. First, a slight change was made in the layout of the Clothing Department manufacturing space which should reduce the standard time per product. The direct labour standards have not yet been updated to include this change. Secondly, a new type of fabric was purchased from Tees’ fabric supplier. The supplier had claimed that the new material (which is of high quality, yet cost a similar price to the old material) is easier to work with in terms of both cutting and sewing. Testing by our factory staff supported this claim. The fabric supplier is known to be reliable in terms of material supply. These facts are not in dispute. Areas of responsibility Production managers are responsible for production volume, and purchasing managers are responsible for material purchases. However, managers’ reward is not based only on control of the items for which they are responsible. These managers are currently rewarded based on a combination of two measures as follows: on total cost variances, and on dollar bottom line profit of the three products in the T-shirt Department. 1
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Tees - Case Data - TEES @ TUGUN M anufacturers of surf gear...

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