Strategic Cost Management
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 decision-making process within Wilson Electronics. The presentation focuses on a cost-reduction proposal as a way to demonstrate that ABC is capable of aiding the decision-making process. This proposal is the redesign of the A12 junction box. The current used standard cost system is unable to link the reduction in the number of parts to activity reductions and cost saving, so it is a good chance to demonstrate the value of Activity-based costing system.
Discussion
1.What is the ABC cross model? Define what is meant by the product costing, process costing, and the “what-if” cost-modeling perspectives of ABC.
ABC cross model could provide a platform for discussing applications of ABC from different perspective which not only a “what-if” cost-modeling but also both a product-mix-strategy and a process-cost-management. Product costing is the process of accumulating, classifying and assigning direct materials, direct labor, and factory overhead costs to products or services. Process costing is a product costing system that accumulates costs according to processes or departments and assigns them to a large number of nearly identical products. “What-if” cost-modeling is one of the ABC model’s capability, it can calculate the cost with given
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 decision-making process within Wilson Electronics. The presentation focuses on a cost-reduction proposal as a way to demonstrate that ABC is capable of aiding the decision-making process. This proposal is the redesign of the A12 junction box. The current used standard cost system is unable to link the reduction in the number of parts to activity reductions and cost saving, so it is a good chance to demonstrate the value of Activity-based costing system.
Discussion
1.What is the ABC cross model? Define what is meant by the product costing, process costing, and the “what-if” cost-modeling perspectives of ABC.
ABC cross model could provide a platform for discussing applications of ABC from different perspective which not only a “what-if” cost-modeling but also both a product-mix-strategy and a process-cost-management. Product costing is the process of accumulating, classifying and assigning direct materials, direct labor, and factory overhead costs to products or services. Process costing is a product costing system that accumulates costs according to processes or departments and assigns them to a large number of nearly identical products. “What-if” cost-modeling is one of the ABC model’s capability, it can calculate the cost with given