=+At the end of 2013, PS unsuccessfully bid for a large institutional contract. Its bid was reported to be 30% above the winning bid.

This feedback came as a shock because PS included only a minimum profit margin on its bid. Moreover, its plant was acknowledged as the most efficient in the industry.

As a result of its review process of the lost contract bid, PS decided to explore ways to refine its costing system. First, it identified that $188000 of the $983000 total production support costs related to packaging materials and could be traced to individual jobs ($180000 for retail and $8000 for institutional). These costs will now be classified as direct materials. The $150000 of direct materials used were classified as $135000 for retail and $15000 for institutional. Second, it used ABC to examine how the two products (retail potato cuts and institutional potato cuts) used indirect support resources. The finding was that three activity areas could be distinguished: