Case Study Pronto Plactics

2222 words - 9 pages

IntroductionPronto Plastics Ltd is a low cost produce of plastic moulded kitchenware. The company has two product lines which is the Pronto plates and cups and the Glamour containers and bowls.Pronto Plastic's corporate strategy is that they are serving in a kitchenware plastic product market and their competitive strategy is that they are expanding their business line with a more sophisticated and complex product. These strategies are to out-beat their competitors and try to maintain their status as market leader.In order to illustrate the position of their two product line, a BCG matrix is shown to have a better understanding on where the company's status is in their respective market.StarsCash Cow DogsBased on the chart above, Pronto's product range is in between star and cash cow. This means that the market still has potential growth and the product is in a dominant position in the market. Therefore, there is still growth in the Pronto product line.Meanwhile, the Glamour product line is still new in the market and the product is in its initial stages of growth. The product is entering the Star stage of the graph indicates that the product is growing and it may either grow or stay stagnant in the initial stages that may lead to a decline in its growth.Report on Pronto PlasticQuestion 1. What are the problems associated with the product costing system currently used by Pronto Plastics?Pronto Plastics (PP) currently utilizes a plantwide overhead rate (based on machine hours) for the purpose of allocating overhead cost to its products. This cost system is antiquated and can often be inaccurate in assigning costs to products where there is a mix of products that are produced in the same factory (Brewer, Garrison & Noreen 2005).There are a number of problems associated with this type of cost system as discussed below.* Overhead costs are not allocated to the products that create cost in the proportion that they absorb it. For example, the Glamour range of products requires significantly more setup resources (i.e., labour and materials) every time they are produced. Additional resources such as production planning, change notices etc are used for the Glamour range, generating more cost but are not necessarily attributed to these products.* Using the current costing system, the Glamour range represents an inflated return on sales, causing management to concentrate on sales of these items. As they are under priced, the company's profitability is adversely affected. The case states that an incorrect understanding of product line profit lead management to instruct sales people to promote and sell the Glamour range over the Pronto range.* PP is under pricing its Glamour range of products in the market place through its antiquated costing system. This may generate unnecessary competitive behaviour in the market, driving prices and margins down.According to Brewer et al (2005, p130), Activity Based Costing systems (ABC) assign indirect costs more...

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