Global Electronics Essay

3073 WordsDec 25, 200713 Pages
INTRODUCTION The purpose of this case is to allow the reader to identify the behavioral variables that can determine the success of implementing an ABC system. There are several case studies that have been performed to examine technicalities in regards to ABC models and how profitability can be determined by the product, customer, or service. This case study focuses on how behavior can impact implementation because of the evidence that ABC has had high implementation failure rates and these failures have occurred mainly due to behavioral variables. We will discuss the background of Global Electronics, Inc. and their situation and then we will expand upon the signs that reveal that a costing system is not supporting management decision…show more content…
The inability to compete in commodities was creating a finished goods inventory that continued to grow. At the same time, producing low-volume specialty orders added complexity to the manufacturing process that was not revealed in the standard cost system. At one time GEI had two sets of cost data, Product Unit Cost (PUC) that used time as a cost driver and direct labor dollar, where managers could choose the data that made their departments look best. The problem was that managers spent a great deal of time conflicted about which costs were actually correct instead of dealing with the true problems at hand. This led the company to discard of the PUC system and an executive as well as a steering committee was developed to create a solution where ABC was adopted. Activity-Based Cost System Chris Richards, Director of MIS, headed the implementation process of the ABC cost system. In this system resource costs are assigned to activities and then volume and non-volume related cost drivers are used to assign activity costs to products (first phase). Richards had a background in ABC and along with an academic consultant and an external consulting firm; he gained the support of top management. The steering committee, of which Chris Richards was chairman, was formed and given the task of overseeing the ABC implementation. The committee was formed of members from finance, product engineering, operations management, marketing, plant management,
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