Case Analysis: Toddler Treasures, Inc.



Case Analysis: Toddler Treasures, Inc.

Introduction

Toddler treasures Inc deals in sale of blankets. Since they have recently entered in production industry from cottage industry, they are facing several management accounting issues which needs a compressive review. This report will identify and present these issues that are affecting the company. It will also conduct variance analysis based on price and quantity of material, labor and overhead. The report will also have appendix showing all the supporting computation. The findings of the report will ease the management in the decision making process aimed at handling these issues.

Issue Identification

Initially, the company was operating in cottage industry. After the initial success, the company's management was encouraged to enter the production plant formally. They hired CFO David Reed, who implemented Standard Costing system in the production plant. The decision to implement standard costing rather than any other costing system is driven by the fact that it appears most appropriate keeping in view all the circumstances affecting the production plant. Further clarification on the decision and advantages of this costing system will be provided in later stages.

Under the requirements of the standard costing system, CFO has studies the work processes by means of time and motion studies and concluded it by arriving at standard costing rates at different cost centers including material, labor and plant overhead. However, after a complete production cycle, there are significant divergence of actual cost from standards cost. The management wants a complete analysis on the variances inclduign material usage and price, labor rate and efficiency and manufacturing over head. The purpose of this analysis is to determine the cost centers accurately which need management consideration. This is one of the benefits of using the standard costing. Details will also be given in the later sections.

Apart from costing method and variance analysis, management is also considering replacing the material used in the production of blankets with new and improved material. teh management needs a comprehensive analysis on this issue taking all aspects of alternative options into consideration.

Alternative Generation & Evaluation

Costing Mechanism

As mentioned already, the company was operating in cottage industry, initially. Subsequently it entered in to manufacturing sector after viewing success prospects in the new market. The new CFO, David Reed, implemented Standard Costing system in the production plant. The decision to implement standard costing rather than any other costing system is driven by the fact that it appears most appropriate keeping in view all the circumstances affecting the production plant. Under the standard costing procedure, standards rates are predetermined on the basis of which costs are determined at any production level. Subsequently, the actual cost incurred in the production is compared with the standard cost computed using predetermined rates. This allows the concerned authority to accurately identify the cost center that is posing problem for the rest of the production cycle.

Standard costing has number of advantages for the firm under matter. It enables the management to carry out variance analysis based on price ...