Fuji Cookies is an Australian-based cookies and biscuits manufacturer that specializes in making Japanese-style cookies. It was founded 30 years ago by Daniel Smith, who used to study in Japan and learned the skills of making delicious Japanese-style cookies. The business grew successfully in Victoria with mainly three lines of cookies: crunchy cookie sticks, egg roll cookies, and wafer cookies. Fuji Cookies produces large volumes of each product, using very simple machinery. Daniel adopted a highly decentralized approach in managing the three lines of products and each line manager has independent authority in making decisions of his line. Ten years ago, Daniel passed the business to his son, Brad, who worked in the company since its inception. As the new CEO, he further expanded the business by not only making and selling a lot of cookies, but also producing a wide range of low-volume lines, such as freshly made shortbreads, macaroons, and pizzelles. They are complex to produce and their short production runs involve a lot of extra machinery setups and material handling. But these products are very well-received and have good profit margins. Brad also appoints a new management accountant from Japan, Ms. Keiko Murakami, in hope of bringing context-relevant management accounting techniques that helps improve management decisions. When briefing Keiko, Brad outlines the dramatic changes that had occurred within the business over the past 40 years. In the factory he had seen the introduction of computer-controlled mixing machines and ovens that replaced a lot of the direct labour operations, and an increased emphasis on quality and delivery performance. Indeed, it is observed that more and more effort had been placed on keeping the customer happy. He also admits that the profit is declining, and because of the economic instability, the business may be in danger. Brad thinks that the company must focus on increasing sales, particularly of their high-margin products. After looking at the company situation, Keiko had become concerned about the conventional product costing system at Fuji Cookies. The manufacturing people were also sure that the costing system was distorting product costs. In one brain-storming discussion with Brad, Keiko suggests that Brad can consider using activity-based costing instead of the conventional product costing system to improve the accuracy of the company's product costs. Brad has some reservations on this idea, "I am not sure if this suits our company with this history. We see systems with different fancy names, such as JIT, ERP, TQM, and now it's ABC, or is it ABM? I'm not keen ABC sounds complex and expensive. It is not clear to me whether ABC will end up with a profitable outcome after taking into account its costs and limitations." You are required to help Keiko prepare a report to Brad Smith to facilitate his decision on whether he should adopt ABC in the company's product costing, using the information collected by Keiko and guided by answering the questions listed below.

QUESTION 5

Based on the information provided in the case and using the evidence that you have arrived at

through answering the previous questions, work with your team collaboratively to write a conclusion

report to Brad on the benefits, costs and limitations, and your recommendation on whether activity

based costing system is preferred to the traditional costing system for Fuji Cookies. Your analysis

should be discussed with reference to the supporting evidence and calculations, and with reference

to the specific situation of this company.