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Stewart Box Company Case Study

899 words - 4 pages

I. Executive SummaryThe group provided recommendations on how to improve the control systems and planning processes of Stewart Box. Stewart Box is a profitable medium-sized manufacturing company that has several areas for improvement in its accounting, planning, budgeting and pricing methods. The group highlighted these weaknesses and gave proposals as to how the company can significantly improve its operations.II. Case ContextStewart Box is a packaging company that manufactures paperboard and cartons. Its paperboard division sells to external customers and supplies raw materials to the carton division. Outlined in the case are the planning and control systems that Stewart Box has in place.III. Problem DefinitionThere is a need to review the control systems of Stewart Box to determine if these are configured to properly evaluate the performance the company and its departments. Its management procedures also need to be assessed to establish if the correct people are being involved.IV. Framework for Analysis and Areas of ConsiderationThe group examined each system and evaluated them to see if they are aligned with Stewart Box's organizational structure and nature of business and if the correct people are involved. The group also scrutinized the control system to see if this effectively measures each department's performance and if it can pinpoint the sources of any variance.V. AnalysisBelow are the various systems that the company has in place, with the corresponding analyses.AccountingThe company utilizes a job-cost accounting system using standard costs. These standard costs are based on the annual estimates of labor and factory overhead costs. If these estimates were inaccurate then the standard costs would be incorrect as well. The system must be more dynamic and must examine on a more regular basis (e.g. monthly or quarterly) the allocation of the overhead costs and make the necessary adjustments.Additionally, job-costing requires the fixed costs to be allocated to each job. If the allocation is incorrect, then the costing will be incorrect. These inaccuracies will be passed on to the customer or to the carton division. As with the computation of the standard costs, these allocations must be scrutinized thoroughly and frequently to minimize any errors. Otherwise, these errors will be reflected in management reports such as Exhibits 4 and 5.Exhibit 4 lists the costs and revenues associated with the paperboard and carton divisions. The advantage of this is that the company can easily see which of its divisions are making money. This will allow it to make strategic decisions such as whether to outsource the manufacturing of paperboards.The disadvantage is that the control system is based on the business units, not on the organizational structure. The organizational structure is based on the operational functions of the company, i.e. sales, production and marketing. However in the control system, the figures for these functional...

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