A good mystery never fails to capture the imagination. Money is stolen or lost, property disappears, or someone encounters foul play. On the surface, what appears unremarkable to the untrained eye can turn out to be quite a revelation once the facts and details are uncovered. Getting to the bottom of the case, understanding what happened and why, and taking action can make the difference between a solved case and an unsolved one. Business and organizations are much the same. Their costing systems are often mysteries with unresolved questions: Why are we losing a lot of money? Are we pricing our products accurately? LG Electronics Reduces Costs and Inefficiencies Through Activity-Based Costing LG Electronics is one of the world's largest manufacturers of flat screen televisions and mobile phones. In 2009, the Seoul, South Korea-based company sold 16 million liquid crystal display televisions and 117 million mobile phones worldwide. To make so many electronic devices, LG Electronics spends nearly $40 billion annually on the procurement of semiconductors, metals, connectors, and other materials. Costs for many of these components have soared in recent years. Until 2008, however, LG Electronics did not have a centralized procurement system to leverage its scale and to control supply costs. Instead, the company had a decentralized system riddled with wasteful spending and inefficiencies. To respond to these challenges, LG Electronics hired its first chief procurement officer who turned to activity-based costing (ABC) for answers. ABC analysis of the company's procurement system revealed that most company resources were applied to administrative and not strategic tasks. Furthermore, the administrative tasks were done manually and at a very high cost. The ABC analysis led LG Electronics to change many of its procurement practices and processes, improve efficiency and focus on the highest-value tasks such as managing costs of commodity products and negotiating with suppliers. Furthermore, the company developed a global procurement strategy for its televisions, mobile phones, computers, and home theatre systems by implementing competitive bidding among suppliers, standardizing parts across product lines, and developing additional buying capacity in China. The results so far have been overwhelming. In 2008 alone, LG Electronics reduced its materials costs by 16%, and expects to further reduce costs by $5 billion by the end of 2011. Most companies-such as Dell, Oracle, JP Morgan Chase, and Honda-offer more than one product (or service). Dell Computer, for example, produces desktops, laptops, and servers. The three (3) basic activities for manufacturing computers are (a) designing computers, (b) ordering component parts, and (c) assembly. The different products, however, require different quantities of the three (3) activities. For example, a server has a more complex design, many more parts, and a more complex assembly than a desktop. Required: Identify the impact of using activity based costing for the company. Write your answers on a separate sheet of paper.