Reference no: EM132583000

Michael Bluth is the CFO & Vice-President of Operations of The Bluth Company, a construction company of both residential and commercial properties. His father, George Bluth, Sr., is the CEO and Chairman of the Board for the Bluth Company. The Bluth Company has run into financial problems as of late. Although the quality of their product has maintained over the years, they are starting to see a dip in their orders, both for commercial and residential properties. After investigating with potential customers, they realize that they are not as competitive on price as their main competitor, Sitwell Enterprises.

• Michael Bluth got his brother, George Oscar Bluth, Jr (GOB) to infiltrate Sitwell Enterprises to see the types of properties they are developing and producing. After successfully infiltrating, GOB finds that the homes and properties being developed by Sitwell are of similar quality, however they are priced much better than the Bluth's comparable properties. GOB finds the main difference between the two companies is with their costing of properties.

• The Bluth Company is not run as tight and organized as Sitwell. Their books are always unorganized and not up to date, due in part to their rocky relationship with their head of accounting, Ira Gilligan. Ira has implemented a traditional costing system for the Bluth Company, based on direct labour hours. They are also tracking costs on a process costing basis.

• The Bluths are worried about losing market share to Sitwell and feel they need to make a change.

Required

Question 1: Do you think they are correct in using a traditional costing system or should make a change? Explain.

Question 2: Make a recommendation to Michael Bluth regarding their current costing and tracking system dilemma. Explain your rationale for your recommendation including the drawbacks of their current systems and the benefits of your recommended systems.