Management Accounting: John Deere Component Works John Deere Component Works (JDCW), a subdivision of John Deere and Co., was specifically responsible for manufacturing tractor components. Demand for JDCW products has struggled due to plummeting farmland values ​​and commodity prices. Numerous and consistent failures in competing for JDCW bids have alerted top management to begin questioning their current costing methods. Accordingly, the analysis should be driven by research into current costing methods with the intent of establishing their legitimacy and helping the company adopt a more appropriate costing system.Q1. How did the competitive environment change for the John Deere Company between 1970 and 1980? • Sales increased until 1982, but then began to decline. • Deer scaled down its operations, cut costs where possible, placed greater emphasis on pushing down decision making, and restructured manufacturing processes. • Deere took space away from manufacturing, reduced staff by 38.5% (right-sizing), encouraged early retirements and did not replace most of those who left.• To improve their operations and make their production workflow more efficient they separated three subdivisions: Hydraulics, Transmission Division and Gears and Special Products Division. • The collapse in farmland values ​​and commodity prices in the 1980s increased competition. • The high dollar reduced US exports, thus hurting both American agriculture and American agricultural producers.Q2. What caused the failure of the existing cost system in the 1980s? What are the symptoms of a cost system failure? • The fact that John Deere had previously used a Standa...... middle of paper ......rice and had also sold it to others at a price that barely covered my direct costs. I would not want to assume that an accountant's breakdown of costs into categories (e.g. overhead and direct costs) corresponds to the categories I would want for making economic decisions. In the John Deere case, they called a lot of things overhead that aren't really overhead (e.g. scrap, which is probably proportional to the amount produced). We discussed with my group how the internal transfer pricing arrangement probably encouraged managers to think this way, since it awarded contracts on the basis of direct costs but, according to the books, the actual transfer price would should have been the full price. In summary, the John Deere case was a thought exercise in how not to make pricing decisions.