Superior Notes Essay

Superior Manufacturing Company Case:

Exhibit 1 – Income Statement
Exhibit 2 – Detailed expenses and earnings statements by products and departments for 2004. Indirect Costs allocated to the product factories. Other indirect costs.
Figure A – Companies rent.
Exhibit 3 – Explanation of the nature of the company’s costs including there expected future behavior.
Exhibit 4 – Standard Cost System, value inventories, prepare budgets, and analyze performance. Cumulative standard costs including variances of total company actual costs from standard.
Herbert Waters was appointed general manager of Superior Manufacturing by Paul Harvey in February 2005 because of management problems arising from the death of Paul Havey’s father. Paul Harvey was only 34 and only had 4 years under his belt with the company
In 2004, Paul noted that he made several poor decisions.
Moral of the organization had suffered through a lack of confidence in him.
The income statement in 2004 showed a net loss of $688,000 during what he considered a “good business year”.
Waters came from a competitor and Harvey offered him a stock option incentive in addition to salary.
Waters was given full authority to execute any changes he desired. However, the decisions need to be explained to Harvey as he wanted to be able to take over.
Superior made only three industrial products: 101, 102, and 103.
The products were sold by the company’s own sales force to other business’s.
Superior sold their products throughout New England and were one of eight companies with similar products.
Many of Superior’s competitors were larger and had a larger product line.
The dominant company was Samra Company. Samra announced prices annually, and the other producers followed suit.
Price cutting was rare and the only variance from quoted selling prices was in form of cash discounts.
Superior’s share of industry sales in 2004 was 12% for type 101, 8% for 102, and 10% for 103.
The quoted selling price for the products were $24.50, 25.80, and $27.50 per 100 pounds of product.
Superior’s strategy was based on the “dedicated factory” concept. Each product was produced in it’s own factory
The three factory names were named 101 factory, 102 factory, and 103 factory.
Each factory was horizontally integrated.
Each factory had a dedicated direct labor force. (Hourly workers, shift managers, etc.)
Indirect labor “floated” between factories as needed.
Typically the factories operated below capacity.
Superior maintained a simple cost system.
Management’s goal was to assign all of the company’s costs to each of the three products in a way that would lead to the most useful product costs for the cost system.
The cost system identified two categories of costs.
The first category was material costs that could be tied directly to the manufacture of specific products.
All other costs were placed in the second category and referred to as indirect costs (see exhibit 2).
Per unit costs were expressed in terms of 100 pounds of finished product.
Per unit cost was calculated by dividing the unit

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