Case Study Written Report #3
John Deere Components Works (A)
Emanuel Mirabal
ACC 736- Strategic Cost Analysis
Professor Badr Ismail
September 26th, 2013
John Deere Components Works (A)
Executive Summary
John Deere, a blacksmith, started his career in the steel plow business. He founded Deere
& Company in 1937, and through continuous business development through100 years it
eventually became tione of seven full-line farm equipment manufacturers in the world.”
For almost 30 years the company spent time expanding their product lines and building
new plants but, to their dismay, were still was not able to keep up with the demand of the
market. When the market collapsed in the 1980s, John Deere was forced to make changes
to their operations and cut expenses wherever seemed possible. They found that their
tractor component bids were over-priced. Although the price of the component was higher,
the quality was equal. After many failed attempts to compete for bid in the market, John
Deere Component Works required management to take a closer look into their cost system.
The standard cost accounting system used by JDWC was easy to use and worked for many
years in the past. They simply calculated overhead by direct materials and direct labor.
Over time, this system resulted in major inaccuracies in the calculations due to the fact that
the company was now dealing with unstable production volumes. In conclusion, JDWC
needed to find an alternative cost system that repairs these issues. Through a thorough
investigation it was found that Activity based costing was a more beneficial way to
allocate overhead especially in an unstable environment.
How did the competitive environment change for the John Deere between the 1970s
and the 1980s? Any similarity to contemporary economivents?
The decline in farmland values and commodity prices led to the agricultural crisis in the
1980s. Deere had been expanding its business after World War II by diversifying the
products and producing high volume to meet the demands. However, the agricultural crisis
decreased the demand of farm equipment and Deere struggled because of this event. The
main trigger to this event was “high dollar”, which discouraged foreign countries to import
agricultural products from the U.S. As the demand for agricultural products declined,
American farmers lost their jobs. It eventually led to decrease in demand in farm
equipment. As tione of seven full-line farm equipment manufacturers in the world,” stable
exporting conditions were crucial for Deere and high dollar definitely put Deere in a
