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Ontario Manufactured Parts More than 50 years ago, a young machinist arrived from Denmark and started making machine parts in the backyard garage of his
Ontario Manufactured Parts More than 50 years ago, a young machinist arrived from Denmark and started making machine parts in the backyard garage of his rental house. He had attempted to get a job with a major manufacturing firm, but his European machinist credentials were not recognized. His only hope for employment as a machinist with any Canadian firm was to start as an apprentice. He was insulted and chose to start his own business. Now he is the chairman of the public company, Ontario Manufactured Parts Limited (OMP), the successor of his garage machine shop. OMP is orga- nized according to product lines or factories that serve customers; the factories are placed into three groups for management purposes. There is also a head office and a sales/research centre. Each of the 37 factories produces a limited and related number of prod- ucts under the direction of a general manager who reports to a group vice- president. The factories vary in what they produce, and they are often located near a major customer or customers. Some factories have the capability to pro- duce parts that are produced in one or more other factories. This ability to produce the same part in different factories allows for flexibility in assigning products to factories, especially when there are large and urgent orders, and ensures higher factory capacity utilization rates. All factories have accountants who, under the direction of the factory accounting manager, are responsible for the full accounting cycle, including all transaction recording, financial and operating statements, accounts receivable, accounts payable, asset acquisition, budgeting, performance measurement, etc. The factory accounting manager submits budgets and financial statements to the headquarters accounting consolidations unit. The consolidation unit aggregates the factory budgets and financial statements by respective group, and then for the entire company Each factory is under the control of a factory general manager, and they are placed appropriately in three groups: automotive, appliances, and aerospace. The group vice-presidents are responsible for the profitability of the group and the respective factories. The latter responsibility for the factories is shared with the factory general managers. A major part of the responsibilities of group vice- presidents is to keep their factories busy and profitable. Thus, they need to CASE 30: ONTARIO MANUFACTURED PARTS continuously find existing and new customers who are in the need of parts. This responsibility is shared with the research/sales centre. The research/sales centre is headed by a vice-president. As noted, the future of OMP is dependent on producing parts for existing customers and for devel- oping new parts for existing and new customers. Sales personnel are constantly working with existing and prospective customers to identify their requirements for new parts. Often new parts must be developed which require research engi- neer involvement. This is a highly innovative process where prospective custom- ers with needs are provided with parts that are functional but unique in respect to durability, installation, and componentization. Componentization (making one part that replaces numerous parts) and overall design can reduce the cost of an installed part, and that is what the research centre considers to be one of its areas of expertise and a major strategic advantage of OMP. The compact head office consists of the chairperson, president (to whom all group vice-presidents report), and the senior vice-president CFO (who reports to the president). The latter has three subordinates, the vice-president treasurer, the vice-president administration and legal, and the vice-president controller. The accounting consolidation manager and her unit report to the vice-president controller. The research/sales division vice-president reports to the president. OMP's success has been dependent on producing competitively priced, high quality, and innovative parts. Each of OMP's factories produces a limited number of products. Each product is produced either on a continuous basis or in long production runs; all units in these production runs are identical. Each department performs work on a product and accordingly adds appropriate materials, labour, and overhead costs. For each product, costs are accumulated by department during the accounting period, and the department production report is the key document showing the accumulation of costs by department. Unit costs are an integral part of the department production report. Despite these standard components for product costing at all factories, there is variation in the costing systems among factories. Comparing costs among factories is very difficult for senior management Required OMP is rethinking its product costing. Senior management wants a single cost- ing system for allocating product costs at all factories. In using the case approach, recommend (1) a costing system that is appropriate for OMP and its factories, and (2) a plan for implementing the proposed costing system
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