Case Analysis: Toddler Treasures, Inc.



Case Analysis: Toddler Treasures, Inc.

Introduction

The case is about toddler treasure's management accounting techniques. The firm has transformed from a cottage industry to a fully functioning manufacturing firm. The case required to determine the rate (price) and efficiency (quantity) variance for materials as well as labor employed in producing new blankets, along with delivery variances. The case study report will endeavor to analyze the product manager's decision not to move to a better and higher quality but expensive material for blankets production.

Issue Identification

After due diligence and studying the work processes in the firm, CFO of the firm, David Reed, has approved Standard Costing system in the manufacturing unit. The selection of standard costing system is driven by numerous factors which will be analyzed in the later section. Briefly, the standard costing system enables the management identify the areas which are significantly deviating from pre determined standard performance under normal conditions.

Using the standard costing, the management needs to determine variance analysis on different ends. First of all, material quantity and price variance analysis will facilitate the management in the decision making process and help them identify the efficiency the material has been used and its rate. Similarly, there is need for variance analysis to determine labor efficiency and rate. Once again, it will help management to identify the areas which are lacking behind the standard performance so that corrective action will be taken to correct the situation. Same goes for manufacturing over head variance.

Lastly, the product manager has found a new alternative material for the manufacturing unit. Even though, the new material has better features than the current used in the manufacturing of blanket, but it comes with a higher price. In this scenario, there is a need to address each issue separately.

Alternative Generation & Evaluation

Standard Costing System

The selection of standard costing system in the manufacturing plan by CFO, David Reed, is being driven by number of factors. If we analyze the attributes of the system, there is best match with the requirements as compared to other costing system. The standard costing predetermines the standards that will be used as benchmark. After the operations, the actual cost and quantity will be compared with benchmark set earlier. The management thus, can compare the actual cost with standard costs and make appropriate actions to develop the condition.

One of the fundamental advantages of standard costing is variance analysis based on quantity and price. The firm can utilize this costing system for performance management in manufacturing plants. It assists managers to spot cost centers which calls for their concern so that corrective action can be taken to rectify the deviation. It speeds up the decision making process. It can determine factors accountable for departures from standard performance. It is likely to undertake corrective steps at the earliest. Standard costing set a periodic check on all expenditures. It is management by exception. The targets of different persons are pre set if the performance is also evaluated on the ...