You are to assume you are a consultant working for the company. You will want your report to be professional and ADD VALUE to the company. Using the data, answer the questions below.

Argue for the use of Activity-based Costing by in this case by:

a) Describing when Activity-based Costing is appropriate and when Traditional Costing is appropriate and when each is not appropriate to use.

b) Discussing what are the strengths and weaknesses of ABC? When is it appropriate to use? What kinds of business situations suggest the need for ABC?

c) Applying part a & b to the case and arguing for an Activity-based Costing system.

2) Describe the Activity-based costing system you are recommending. Include a justification for the cost driver selected.

It is also imperative to answer:

Make strategy recommendations for each product and for the plant. Use the cost and profit numbers to justify these recommendations.

3) Comment on the validity of the plant managers concern that competitors are selling below the cost of making Part 127.

4) Explain the apparent lack of competition for Part 234 and the customers response to potential price increase.

5) Make any other additional recommendations or suggestions

Traditional Costing Method Per unit Part 271 Part 342 31.86 24 Selling price Product cost Prime costs 9.53 8.26 Overhead 12.83 5.77 Total product cost 22.36 14.03 Total profit 9.5 10 What is the best cost driver? Cost pool Cost Driver Number of production = + Overhead rate 800 Setup costs runs Material handling costs Material moves 1000 Machine costs Machine hours 9.46 Receiving costs Receiving order 1500 Engineering costs Engineering hours 150 General plant costs Direct labor hours 1.83