Strategic Cost Management

1907 WordsApr 20, 20088 Pages
CASE 1 Executive Summary From the A12 redesign proposal, it shows that the current standard cost system is unable to link the reduction in the number of parts to activity reductions and cost savings. The labor-direct-based standard cost system reflects the cost of A12 is distorted. Using the ABC system, according to the activities of A12 allocate the overhead cost to A12 that could find that the current overhead cost of A12 was overstated by the standard cost system. At last, A12 Junction Box could be identified it is an attractive and profitable product, at the same time, it demonstrates the value of ABC. Introduction Alice Johnson has to make a presentation to the management team that explains how ABC can add value to the…show more content…
Related to direct-labor-based system, the total product cost per unit is $82.72 and only $80.01 while using ABC system. The total product cost per unit reduces by $2.71. From this information, it could infer that Wilson could possibly reduce the price more than the competitor’s announced price reduction of $2.50 per unit, and then keep the competition in the market. 3.Estimate the average overhead charge per unit for the custom product lines using the direct-labor-based standard cost system. How do these charges compare to the per unit charges assessed against the A12 junction box using the standard cost system? What conclusions may be inferred from this information? The overhead charge per unit for the current version of A12 Junction Box shows in Exhibit 6 is $5.21. Using the direct-labor-based standard cost system, the custom product should be charged the same amount from these departments, so it could estimate the average overhead charge is $5.21 per unit. Comparing these charges from both A12 Junction Box and the custom product, it shows that they have the same overhead cost while using direct-labor-based standard cost system. From this information, it could infer that the management’s perception which indicated the A12 junction box was marginally profitable before any price reduction is false. A12 is not a loser compare to the custom product line, just because the
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