The controller of your company is comfortable using a traditional cost system that is familiar.

The argument presented for not detailing cost pools more is that there is always a trade-off in dividing cost pools into smaller units. Further, smaller cost pools inherently require more allocations of common costs. Opponents of changing to an ABC cost system argue that not only can it not be used for external reporting but also some of these additional allocations required become arbitrary merely because there is no strong cause-and-effect relationship.

Required:

Write a memo to the controller of your company discussing why you think simple cost systems with single cost pools are inadequate in today’s competitive environment.