Global Electronics Essay

8640 Words Jul 28th, 2013 35 Pages
Global Electronics, Inc.: ABC implementation and the change management process
Brewer, Peter CView Profile; Juras, Paul EView Profile; Brownlee, E Richard, IIView Profile. Issues in Accounting Education18.1 (Feb 2003): 49-69.
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Descriptions of activity-based costing systems have become a standard part of managerial accounting texts. While ABC implementation issues are the focus of a number of articles, these issues are often not addressed in a typical textbook. A case is designed to familiarize one with the behavioral and technical variables that can aid or impede successful ABC implementation. Anderson's (1995) factor-stage model provides a template to
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There was a feeling that the standard cost system could not truly identify which of the company's products were profitable and which were not. The lack of an understanding of product profitability, a flawed product mix, and poor marketing and pricing decisions could have contributed to GEI's financial problems. A combination of internal problems and external threats in an industry characterized by increasing global competition, decreasing product life cycles, product proliferation, and exploding technological capability led to a shake-up of the company's top management in February 2000. As part of the shake-up, GEI installed a new president, Mike Alberts, and a new controller, Steve Shannon, for the express purpose of strengthening the company's position in the market and improving its financial performance.

THE STANDARD COST SYSTEM

GEI's standard cost system assigned manufacturing overhead costs to products based on direct labor dollars. From 1994-1999, the predetermined manufacturing overhead rate had spiraled upward from 300 percent to more than 600 percent of direct labor. As the manufacturing process became more technologydriven, management worried that high-volume products and/or less complex products were being overcosted and that low-volume products and/or more complex products were being undercosted. Indeed, GEI seemed unable to compete with the low prices offered by its competitors on high-volume, commodity business. The
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