Company Boot Division Troubles: Problem Statement, Cost Centers - Essay Sample

Introduction

Given that a company that manufactures shoes is experiencing some difficulties due to returns and complaints from customers in their boot division, executives are thus meeting to try and work out the problems in the boot division and how they cost the company. Below is the problem statement concerning the company's difficulties, an affinity diagram, and the six cost centers.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Order now

The Problem Statement

Boot department is experiencing troubles with product returns and too much customer complaints. The company may thus improve the raw materials and the quality of the products. Analysis and data collection on the most frequent customer complaints is performed to curb the issue. Besides, employees should be trained on how to handle customers, and finally, the committee can employ more employees to handle customer complaints.

The below diagram gives a summary of an activity that generates a lot of data. Data and ideas are organized systematically after a brainstorming secession, where they are group into respective headings (Widjaja Yoshii, Haga, & Takahashi, 2013).

A cost center also referred to as responsibility center, is a department within an organization that is believed to generate costs but doesn't at any point generate any revenues directly. It can thus be thought of as a department that does not put up to the sales, profitability, or production of the business but consumes resources. Cost center does contribute to the profit of the company indirectly. There are various types of cost centers in the manufacturing department, below are some of them:

Firstly, we have the accounting and tax department. It is a department in a company that employs personnel whose main job is to record and report all activities involving cash flow transactions such as issuing payrolls and pays all suppliers within the company, look for ways to increase efficiencies and lower taxes. The accounting department can help smaller companies expense by lowering taxable income for the company, thus contributes to the profitability of the company indirectly (Cooper & Kaplan, 1992). It is, therefore, an essential department that can never be closed.

The second cost center is the legal department. It is where all legal issues of the company are taken care of whether small or large companywide issues. Depending on the size of the lawsuit, this department can save the company much. Mostly this department consumes companies productions which could be used on the production floor however does not contribute to the production or sale of the business. As much as this department provides to the expense of the business, it can never close since it helps fight companies legal issues in the best way it can (Cooper & Kaplan, 1992).

The third cost center is the customer service center. Personnel in this department are involved in various activities such as communicating with customers and answering their questions and in case of a problem they help resolve it. They also go to the extent of advising customers about various goods and services offered in that company. This department doesn't add any profit directly to the company but instead withdraws from it in the form of telephone credits which is needed while communicating to the customers and at the end of the month, the person in charge expect a salary. This department, on the other hand, contributes to the growth of the business by creating a strong relationship with the clients, which encourages them to come back next time thus leading to the growth of the company.

The production department is yet another cost center of a manufacturing company. In this department, the cost incurred when a company is acquiring goods and services. To purchase raw materials and pay for the services rendered, a company must be required to give out some money depending on the cost of the raw materials needed and in line with the quality of services required (Sharman & Vikas, 2004). Buying machines and performing machine repair may require a company's money. This department thus doesn't contribute directly to the company's profit but can save a company much by locating low cost raw materials, cheaper services, and low cost machines.

Utility cost is yet another expense a company incurs. It is when a company uses things like electricity, water, and heat during the production process. The company can control their usage to help eliminate unnecessary costs. When this is achieved, a company can benefit from fewer expenses and more productivity (Sharman & Vikas, 2004).

Lastly, we have the labor cost center. This department takes care of the welfare of an employee by ensuring they receive maximum training, making sure they are not overworked and that they receive the necessary cover like health cover (Sharman & Vikas, 2004). This department doesn't contribute to the profit of the company directly, but when employees are contented with their working environment, they can deliver excellent services, thus improves the company's profit.

Conclusion

In conclusion, cost centers do not contribute to the company's profit directly but do it indirectly. It possess various benefits such as monitor efficiency of the company, improves employee confidence, prevents losses, helps increase companies' profits, and improves management efficiency where the managers are able to compare the cost of data at various periods and are able to see whether a cost center is contributing to the loss or profit of the business.

References

Cooper, R., & Kaplan, R. S., (1992). Activity-based systems: Measuring the costs of resource usage. Accounting Horizons, 6(3), 1-13. Retrieved fromhttp://host.uniroma3.it/facolta/economia/db/materiali/insegnamenti/588_3929.pdf

Sharman, P. A., & Vikas, K. (2004). Lessons from German cost accounting. Strategic Finance, 86(6), 28-35. Retrieve from https://sfmagazine.com/wp-content/uploads/sfarchive/2004/12/Lessons-from-German-Cost-Accounting.pdf

Widjaja, W., Yoshii, K., Haga, K., & Takahashi, M. (2013). Discuses: Multiple user real-time digital sticky-note affinity-diagram brainstorming system. Procedia Computer Science, 22, 113-122. Retrieved from https://www.sciencedirect.com/science/article/pii/S1877050913008806/pdf?md5=1a130933920bbbd0f035dd30780b1bd3&isDTMRedir=Y&pid=1-s2.0-S1877050913008806-main.pdf