Question

Discuss the different types of costing methods used by the Ford Motor Company (Include fixed and variable costs.)

Using your managerial accounting knowledge and skills, give 2-3 recommendations on how Ford Motor Company can make improvements.

Answer 1

The Ford Motor Company implemented the activity based costing method so they could focus on the value of their processes. “Ford relentlessly emphasized the need to analyze every step in every process to see if it created value before finding a way to do it better” (Edwards). If steps do not add in value, then they can either be eliminated or improved. This is exactly the idea behind activity based costing. ABC gives an organization the tools they need to make an informed decision on making their processes better. The Ford Motor Company uses ABC to ensure they remain competitive in the automobile market. Several companies use the activity based costing method and they remain successful.

“The companies benefiting the most from ABC would be companies with a significant amount of overhead pertaining to a diversity of activities in providing goods (or services) to customers whose demands also vary” (Small Businesses). A company that has very little overhead costs does not have much of a need to use ABC. Companies that have overhead costs and several activities have a need to use ABC. A company will receive better results if they use ABC over a long period of time as this will give them time to gather better data. The more data they have will help leaders and managers make solid decisions on the company’s processes.

Maintaining Change Controls

Changes occur with any project, regardless of scale. However, controlling how changes are managed and implemented can reduce the impact on the overall project. It is not about always limiting the change requests, but altering how the change is formatted, its relation to the scope of the project and its subsequent communication to the necessary change providers.

Explore For Hidden Costs

Hidden costs can be a significant factor in controlling costs. This can be a lack of anticipation in regards to fluid assets or commodities necessary for the project or any number of variables. An exacting search for hidden costs should be conducted as part of any planning stage, however, there should also be a period review for hidden costs during various phases of a project. This can reduce the impact of the costs upon their discovery and allow them to be effectively managed within the context of the project.

Maintain Consistent Headcount

Managing human resources can be an important part of a project’s cost control methodology. It is important to maintain a consistent level of staffing in all aspects of the project in order to reduce the potential for cost increases due to adjusting staffing levels ad hoc. In addition, it can have ancillary effects on other aspects such as costs due to safety concerns and more.

Implement Vendor Controls

Vendors will attempt to pass on cost increases as they occur. However, proper vendor controls can limit these increases. Additionally, vendors who are underperforming should be replaced as part of a project’s vendor control scheme to reduce potential liability and other hidden cost areas.

While not a comprehensive list of cost control aspects, these five measures can help limit cost increases while at the same time reducing the impact on other aspects of the project. A maintenance of scope and change controls, implementing vendor controls and discovery of hidden cost areas while also providing clear communication of objectives, expectations and maintaining a consistent headcount can limit and control costs while ensuring the success of the overall project.