CASE STUDY

BUSU PTY LTD (Busu) was started by Neil 'Red' Williams and Jack Soso in the town of Goroka in the Eastern Highlands Province of Papua New Guinea.

Initially the business focused on small scale coffee-cherry and parchment-coffee buying activities from smallholder village growers. Eventually the business grew and became successful during times of high coffee prices.

Buoyed by these initial successes, Busu ventured into other areas of commerce and started the following subsidiary businesses:

Busu Coffee Factory - buying and processing coffee cherry into green bean (unroasted coffee bean) for sale to coffee exporters.

ABOL Electrical - electrical contracting services and sale of electrical components.

Goroka Wreckers - New and Used automotive parts and vehicle repairs.

Busu Motors - Mazda vehicle dealership, vehicle servicing, and retail fuel stations.

Markham Poultry - chicken farm supplying frozen chickens for supermarkets.

Goroka Butchers - retail fresh meat supply for the Goroka township

While encouraged by the growing success, Red and Jack have become increasingly aware and concerned by the great diversity within the many business activities of BUSU. From conversations with business associates as well as competitors recently, they have heard 'Activity Based Costing' being mentioned as a way to improve accuracy in costing their diversified products and services.

QUESTION:

Explain the difference between the 'traditional' costing approach and Activity Based Costing (ABC), and how ABC may "improve the accuracy in costing their diversified products and services, and provide 2 examples from the many businesses of BUSU that may support the need to move to an ABC approach.

(550)