The cost data below are for a medium-size, family-owned pump manufacturing business located in the Midwest, which we will refer to as Pump, Inc., for confidentiality reasons.
Pump, Inc., reorganized much of its production into manufacturing €œcells€: self-supervising work centers that produced complete products. The cell program was initiated because of a strategic decision (with no management accounting data to support it) to improve customer service. The financial impact of the program was unclear; the operational causes and financial effects were murky. As a result, the management team at Pump, Inc., was having a difficult time evaluating the effects, but needed to decide whether or not to change most of the company to manufacturing cells. (Some of the production process continued to be organized as a typical production line, similar to what is demonstrated in the chapter.) The current year€™s cost data are presented below in the standard format used by the management accountant for Pump, Inc.

The management team, however, had a difficult time using the cost data in this format and asked the management accountant to reformat the data to make them more useful. After some analysis, the accountant decided to provide more detail by breaking down Manufacturing Overhead into subcategories organized by function: Indirect Materials, Indirect Labor, Factory Support, Occupancy Costs, and Non-Factory Support. The accountant also realized that she could divide all costs into two additional categories: People Costs (representing costs for wages and salaries) and Purchased Costs (representing costs for materials, supplies, and services acquired from outside agencies). The new report format is presented below.

Consider the two reports on cost data for Pump, Inc.
1. Do you think the new report format provides any additional information value for controlling and evaluating the decision to change most of the production process into manufacturing cells?
2. What costs do you think the management team at Pump, Inc., should pay attention to in its effort to better control costs in the production plant?
3. Most importantly, if you were on the management team at Pump, Inc., what additional data would you like to see the management accountantprovide?

Original Cost Data Format Cost Category Percent of Cost 54.55% Cost Direct materials. Direct labor. Manufacturing overhead. $433,966 96,990 12.19 33.26 264,583 Total costs 100.00% $795,539