CASE 1 Mechanical City Mechanical City manufactures electronic testing and measurement instruments. Many products are custom-designed with recent orders for function generators, harmonic analyzers, logic analyzers, temperature measurement instruments, and data logging instruments. The company prices its instruments at 30 percent over estimated cost (excluding administrative and selling costs). Recently, senior management has noted that its product mix has changed. Specifically, the company is fewer large orders for instruments that are relatively simple to produce, and customers are saying that the company is not price competitive. The company is, however, receiving more small orders for complex instruments, and appear happy to Mechanical City's The situation was discussed at a weekly management meeting. Vinson Kompany, VPof operations, blamed the company's antiquated cost accounting system. "Look," he said, "if you have bad cost information, you're going to have bad prices, and we're still doing product costing the way companies did it in the 1930s. I've been reading articles about activity-based costing and they indicate that out-of-date costing systems make simple products look too costly and complex products too cheap. 1f that's true, it would explain why we're not price competitive for simple products. MacBook Air