JABC Inc.

I cant figure out why were loosing money on the deals we do accept, and yet we turn down deals that could be potentially very lucrative, shouted John Smith, Sales Manager for JABC, a manufacturer of premium sound systems designed for arenas and other large scale venues.

Were one of the most respected players in our field, and since we moved to an ABC costing system, all hell has broken loose. This was supposed to be better than our previous job costing system.

JABC offers two customized audio solutions, JB1 and JB2, which account for 80% and 20% of the companys sales respectively.

We seem to be loosing a lot of money on our JB1 sales, yet in hindsight; weve been turning down a lot of profitable JB2 business. Whats going on here? Our markup percentages are very reasonable as well.

We need better real-time cost information; otherwise we may as well shut our doors.

Also, based on recent forecasts put forth by the accounting team, it seems that as we shift our production focus from JB1 to JB2, the JB1 line starts looking more profitable.

Can someone help me out here? shouted John Smith.

Required:

Prepare a brief Memo to Mr. Smith, outlining possible problems and solutions to JABCs cost allocation problems. Outline any other issues you think may be relevant.