Shun Electronics Company

SHUN ELECTRONICS COMPANY

By:

Bacho Khorava Giorgi Papuashvili Salome Kvaratskhelia Tata Jajanashvili Vazha Nutsubidze

SHUN ELECTRONICS COMPANY

Table of Contents
Prologue
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Existing Cost Calculation Structure Actual Proof Checking System Current Changes

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Q&A on Divisional Meeting

SHUN ELECTRONICS COMPANY

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SHUN ELECTRONICS COMPANY

Prologue
The Shun Electronics Company is a medium-sized, family-owned firm in the Malaysian electronics industry. The company has two operating divisions. The KB Monitor Division manufactures computer monitors that are primarily sold to off-brand computer companies. The KL RadioDivision makes two basic radios: a shelf model and a portable model. Each of the two models are available in three versions: one version was for use in a bathroom shower (a popular option especially in the American market); another has a 1950’s-style metal cabinet; and the third version has a wooden cabinet. All six radios were distributed primarily through high-end catalog retailers. Productionprocess is carried out in 3 departments: 1. Assembly 2. Fabrication 3. Finished Goods The Assembly department assembles the basic chassis using parts purchased from outside the company. In this department, Section 1 was where the various electronic components were staged for production and assembled into functioning, modular units. In Section 2, the modular units were tested and any electronicproblems were rectified. In Section 3, the modular units were mounted on a basic chassis and tested again before being passed on to the Fabrication department. In the Fabrication department, the radios take one of three routes. Those intended for in-the shower use go to Section 1 where they were sprayed and treated to protect them against moisture. Before leaving Section 1, the sprayed modular unitsare encased in a colorful plastic cabinet the division bought from a vendor. Those radios destined to receive a 1950’s-type metal cabinet go to Section 2. In that section the cabinets are cut from sheet metal, punched, bent to shape, and painted. The metal cabinet is then mounted on the chassis. In Section 3, Shun’s distinctive wooden cabinets are crafted, finished and fitted to the chassis. In theFinished Goods department, all radios are given a final testing and adjustment in one area and are packed for storage or shipment in another area. The Assembly and Fabrication departments are run by foremen. Reporting to them are section leaders for each of the sections. The Finished Goods department has no foreman or section leaders and only part of its efforts are devoted to the KL RadioDivision. The test area is under the supervision of a quality control engineer who is part of the company’s engineering department. The packing area is run by a supervisor.

Existing Cost Calculation Structure
For many years the company has been using standard cost system in which a standard product cost was computed for each of the six radios on divisional bases, divisions were cost pools used toallocate indirect cost to each type of radio. Budgeted direct material and direct labor costs per radio are based on standard quantities and hours and expected material costs and labor rates. A standard overhead cost allocation rate was applied to direct labor plus direct materials in the Assembly department, and on direct labor alone in the other two departments. The percentage used for the...