Sunday, December 1, 2019

Touro University International Essays (990 words) -

Touro University International James L. White ACC 501 Module 5, Case Assignment Dr. Paul R. Watkins INTRODUCTION The purpose of this report is to read about Steinway and Sons pianos and answer the following questions; do I think Steinway Piano is a good candidate for Activity Based Costing and why? I will also explain what could happen if Steinway Piano does not use Activity Based Costing and finally I will identify several dysfunctional decisions that could be made using traditional cost allocations. By discussing these topics, I hope to offer some knowledge and tools that can be used to help Steinway and Sons in their costing process. I will conclude this report with a brief summary of the entire analysis, highlighting some of the most significant parts that the report contains. ACTIVITY BASED COSTING In an article entitled "Scholars tout benefits of activity-based costing" by Katy Saldarini she explains that, "Activity-based costing is an accounting tool designed to break down in detail the costs of all of an organization's activities. The assumption is that such detailed information will give managers the information they need - and have historically lacked - to make sound business decisions." (Saldarini, 2000) The use of Activity Based costing can help an organization to accurately product cost their product in today's highly competitive market place. In any organization decisions must be made that can most likely have an enormous impact on the life of the organization. Activity Based Costing gives organizations a better accounting method for managers to use to make valuable decisions such as; highlighting inefficiencies so resources can be redirected to be used where they are most beneficial, and to indicate when gradual changes have had a large impact on cost activities. Can Activity Based Costing help Steinway and Sons? Activity Based Costing can be very good tool that can be used for product pricing decisions where manufacturing operations involve large amounts of factory overhead. Some of the benefits include: a management tool that provides better allocation of resources, a applicable to both appropriations and revolving funds, relates total cost (resources consumed) to work accomplished (outputs produced), aligns costs to outputs, thereby increasing cost visibility, and it's useful in forecasting financial baselines. By providing more accurate product cost allocations, Activity Based Costing, aids in setting product prices that will cover costs and expenses. If I break down some of the steps for building a piano by Steinway and Sons I can see the massive amount of work that goes into the production of their product. First the rim is formed (Layers coated with glue, Stack layers into single layer, and Rim is bent), second the sound board is made (formed by hand, carefully tapered by craftsman), third the bridge is made (heavy black graphite applied, tool used to mark points), fourth the wooden brace is made (custom fit, secured into rim), fifth the arms are done (sanded into shape), sixth the cast iron plate is accomplished (fit into the piano, graphite spread over it, lowered into the piano, fitted, raised out the case, and shaved to eliminate gaps), seventh the strings are accomplished (insert with turning pin, machine turns pins, wrap coils around wires, pin placed through one of two hundred holes), eight the hammers are accomplished (glue applied, placed in groove, pressed around wood rod, and rod sliced), ninth the hammer stock is accomplished (sometimes heated by a flame), tenth the damper is accomplished (accomplished by master technician), eleventh the voicing is accomplished (Accomplished by master voicer) and twelfth the tone regulator listens to the piano for pitch and a final inspection is done before sell. With all of these steps Steinway and Sons could definitely benefit from Activity Based Costing by breaking down everything that's done on the line for product pricing. With the amount of steps, man hours, and personnel needed to make a Steinway and Sons piano, Activity Based Costing can have a huge impact on the costing of their pianos. With the traditional way of allocating cost it may only be influenced by one activity level or cost driver. The organization must be able to track down as much of the total fixed costs as possible from the product lines. Without Activity Based Costing Steinway and Sons may not have a realistic cost for their products, they may be losing money by

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