ABC-ABM at Hewlett-Packard Europe for customer support. Isabelle Lacombe & Pierre-Laurent Bescos

The purpose of this report is discussing the case of Wilkerson Company that confronting tough competition in price cutting in pumps which caused to a big drop of pre-tax operating income from 10% to 3%. After observing the existing costing allocation, we found out there is an issue on the existing costing report that the manager could not be able to see the real situation. In light of this, there will be brought to the discussion on the feasibility of using an alternative costing method – Activity based costing (ABC) in the latter paragraphs.

In a virtual corporation environment, I believe the ABC method to be the most ideal for accurately tracking the costs involved in manufacturing, storing, delivery, and sales. For Super Bakery, Inc. the addition of multiple outsourced companies to their processes meets the criteria of products with manufacturing complexity that requires differing degrees of support services (Kimmel, Weygandt, & Kieso, 2009, p. 876). As a result, I agree with Super Bakery Inc.’s decision to implement an ABC system.

Develop and diagram an activity based cost model using the information in the case. Provide your best estimates about the cost and profitability of Wilkerson’s three product lines. What difference does your cost assignment have on reported product costs and profitability? What causes any shifts in cost and profitability?

In a virtual corporation environment, I believe the ABC method to be the most ideal for accurately tracking the costs involved in manufacturing, storing, delivery, and sales. For Super Bakery, Inc. the addition of multiple outsourced companies to their processes meets the criteria of products with manufacturing complexity that requires differing degrees of support services (Kimmel, Weygandt, & Kieso, 2009, p. 876). As a result, I agree with Super Bakery Inc.’s decision to implement an ABC system.

For 2004, Fixed expenses = 436 (in million €). Also, CM ratio = 653/ 1686 = 0.387

Harburg Ltd. Epic Ltd. 20 27 9 13 14 25 29 28 22 30 10 30 4 5 6 11 28

Under an ABC system, the allocation of costs to products is achieved through at least four analytical steps. Firstly, costs are grouped into activity levels. Secondly, cost drivers are

Under a traditional system, overhead cost is allocated to an activity based on hours or rates for direct labor or machine usage. However, this approach does not clearly indicate how much overhead cost will be needed in order to complete a job through a particular function. ABC methodology is to be used as an alternative to traditional accounting where a business 's overhead costs (indirect costs such as electrical energy consumption for heating or cooling, or indirect cost associated with marketing) are allocated as a proportion of direct costs, to an activity. This approach is unsatisfactory because there can be cases where two activities could absorb the same direct costs

One of the best aspects of the way the time-driven ABC system was put into place at Kemps was how efficiently and accurately management determined the main issues with the current cost system and responded with appropriate and relevant solutions. For example, one of the greatest problems the company was facing was that many of its operating costs were spread out equally over a customer base that was growing more diverse and demanding more personalized and varied service, effectively cutting or potentially eliminating entirely Kemps’ profit margins for a product. Therefore,

8. Using the ABC data, compute the average contribution to profit per account for both retail and business customers. What business strategy would be a manager using the ABC cost system likely adopt? How does this result compare to your response to Requirement 1, Part E?

In using ABC overhead costs are distributed differently across the three products, but in total they are the same, in total. However, ABC changes the information that managers receive to make effective business decisions, which will ultimately result in improved business results.

Q3. How were the limitations of the existing cost system overcome by the ABC Cost System? What are the implications of the ABC system?

* ‘Other Cost’ posted 21 thousand euros higher costs, especially in supervision, energy and maintenance

Keeping in the mind importance of even the smallest decisions that management may have to face on a daily basis, integrating a different kind of cost and attempting reduce as many constraints as possible is a very important decision. When it comes to integrating ABC costing rather than traditional costing, businesses are implementing a more accurate and specific costing method than they would get if they went with traditional costing methods. GAAP allows for traditional accounting methods. This is a big deal because by using the ABC method rather than using traditional accounting method allows a more transparent and accurate costing approaches. Using ABC allows management and the other higher level employees see where money is coming from and specific expenses are made and thus give them the ability to make proper alterations to the way certain events are carried out throughout the daily process of the business and thus give management an opportunity to improve their profits and the way they do business. With traditional accost methods however, there is less accountability on specific

Traditional costing technique known as Conventional Activity Based Costing (CABC) had been used by large scale firms to measure their cost and customer profitability every month. It had been a successful ABC but mainly require a lot of manpower and time. Due to such reasons many companies avoided ABC, others completely ceased it. Contrast to this they implemented a new method of costing as Activity Based Costing(ABC) has originally originated in1980s to solve all the deficiencies with the conventional based costing. ABC uses the Enterprise Resource Planning(ERP) which automatically feeds the data to provide the data reports and customer profitability. Despite ABC is not accepted all over the globe, as it is ranked