1. Assess the implementation of the time-driven ABC system at Kemps. What do you like about it? What are you less happy with, and would have done differently?
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,
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Second, costs could be reduced by consolidating deliveries so as to eliminate the additional cost of transporting less-than-full truck loads. Additionally, packaging could be standardized so as to reduce changeover times on the production floor. Should none of these options (or any appropriate combination of them) be acceptable, Kemps may need to consider discontinuing the relationship with the customer.
b. National branded chain of retail food outlets that was soliciting bids from dairy suppliers
As previously mentioned, the use of activity-based costing gives Kemps an advantage when competing for customers in an ever more competitive and growing market. However, the ability to succinctly distinguish how many small changes, when taken together, can have a large impact on cost savings (and therefore profit), is necessary in order to convince customers who may not be familiar with the many benefits of ABC. Mainly, management would want to demonstrate how the cost savings that they enjoy are ultimately passed on to their customers, perhaps by showing some of the improvements that have been made to their own company as a result of implementation, specifically focusing on advancements that would have a direct impact on the customer’s business.
c. High incidence of returns from convenience store outlets.
There is no doubt that excess returns due to overstocking would be a major
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
4) Based on your positioning strategy, what brand name and marketing budget allocations would you advise?
Young Professional magazine was developed for a target audience of recent college graduates who are in their first 10 years in a business/professional career. In its two years of publication the magazine has been fairly successful. Now the publisher is interested in expanding the magazine’s advertising base. Potential advertisers continually ask about the demographics and interests of subscribers to Young Professional. To collect this information the magazine has commissioned a survey to develop a profile of its subscribers. The survey results will be used to help the magazine choose articles of interest and provide advertisers with a profile of subscribers. As a new employee of the magazine, you have been
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.
With this system each customer’s order cost the same amount to complete causing orders with high profit limits to subsidized orders with low profit limits making it difficult for Super Bakery to know the true cost for an order. The company changed to the activity-based costing (ABC) system allowing the managers the ability to recognize the cost and profit margins for each sale. The ABC system associates the costs with the activities allowing managers the opportunity to access a system that allocates overhead costs that uses multiple bases. Costs can be traced back to each individual’s account regardless of the product provider letting managers know which products are profitable and which ones are not. The traditional costing system allocates cost to departments or jobs instead of overhead cost pools. The traditional costing system makes it difficult to know which activity or product is making a profit.
The ABC system will help management analyse the profitability of each customer and restore the profitability of the company. Allied needs to offer benefits such as modified compensation plan focused on growing customer revenue and profitability to help encourage sales behaviour. TFC is able to significantly improve profits by concentrating on individual account management which SBP is capable of by identifying service costs and calculate the contribution for each account and then rank the accounts according to profitable ones. TFC should charge its customers based on their service usage by using cost plus pricing. The customers would be charged based on the cost of product plus service charge based on SBP systems plus a mark-up so that it will be fair to customers that have the same sales but different level of service.
Question 2. Was the implementation of ABC at GEI successful? What did GEI do well? What areas of the implementation could have been improved on? What are the key success factors that lead to or impede successful ABC implementation? Be sure to consider behavioural as well as technical factors. Analysis 2: It appeared that GEI 's two-phased implementation plan had been partially successful. The first phase succeeded in delivering timely, revised product-cost information for strategic pricing and mix decision making. The second phase struggled to deliver upon its promise of delivering productivity improvement and cost reduction. The ABC implementation was completed in the nine-month time frame, as planned. Based on a total of 88 interview sessions, 674 activities and 254 activity drivers were identified across all five plants and entered into the standard cost subsystem that provided data for the financial reporting system. The project team streamlined the implementation process by only including activities within the cost model that it believed could materially affect strategic product-pricing and mix
5-47 ABC and TOC Discuss the similarities and differences between activity-based costing and the theory of constraints, as well as situations in which one approach might be preferable to the other.
Activity-based costing reveals that this analysis is faulty. Using activity based costing, we find out how much work goes into the sales for each category. The results are as follows:
the more popular models for collecting and tracing costs is known as activitybased costing (ABC). This article examines how one government acquisition
Managerial accounting is a discipline within the accounting community that focuses on providing valuable information to the leaders of their organization. The importance of the community relies on its ability to provide information that is not readily found in traditional financial statements developed in the accounting department for reporting to outside agencies. Activity-based management utilizes information developed using activity-based costing (ABC) to accurately determine product costs. Accurate and detailed information is required for an organization to reliably budget for the upcoming quarter or year. A complete understanding of the significance of activity-based costing and thorough knowledge of budget concepts are critical
The purpose of this memo is to discuss and evaluate our traditional cost based system versus the new activity based or discrete product costing system. I am going to highlight some of the positive aspects of the new system, discuss future scope and improvements along with some deeper analysis into our unprofitable products and customers.
Activity-based costing, or ABC, is defined as “a total quality management tool for cost and performance measurement of activities, resources, and cost object” (Narong 12). Activity-based costing allows business to accumulate information and data about operating costs of the company. Three things made this popular in the 1980s. First, it “eliminated the product cross subsidies inherent in cost accounting. Then, it revealed the sources of loss that were responsible for the decline in profitability. Third, it acted as a catalyst for decisions affecting profitability” (Turney 4). Activity-based costing allows firms activities to be identified. After the activities are identified, products are then assigned different indirect costs. Activity-based costing is sometimes referred to as horizontal or cross functional cost view. It provides
This case study investigated the implementation of activity-based costing (ABC) at Super Fast Engineering Co. Ltd (Super Fast), a large manufacturing company in China. Super Fast formerly is a state-owned enterprise (SOE), which turned public limited company (PLC) later. In December 2001, when ABC concepts were at a theoretical level in China, the company had piloted ABC implementation in its main production divisions in its subsidiaries. (Liu and Pan, 2007).
ABC is a cost method identifying the activities causing the overhead in organizations and then assigning the cost of each activity to products demanding those activities. In the 1980s, General Electric Company came up with ABC as a business improvement technique that can enhance their accounting system (Johnson, 1992; Kee, 1995). Since then, this methodology has been evolved and ubiquitously adopted by many firms, such as HP, Allen Bradley, General motors, and IBM. Some firms embraced ABC along with plants modernization in USA for dropping costs and boosting quality (Blocher, Chen, & Lin, 1999).