Siemens Motor Works

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1. Why did they need to introduce a new type of product cost system? what is wrong with the old and why is that a problem? Siemens Electric Motor Works is one of the largest corporations that produce electrical products. In order to decrease costs and be profitable in a competitive environment they needed a new solution by implementing a new strategy. The new strategy was to produce a lower volume of specialty products rather than the high volume of standard motors. Implementing a new strategy for specialty motors made the company realized they could no longer use the old cost system for costing standard motors. That is due to the fact that the old system did not provide the correct information to calculate the price for the specialty motors. Another reason for changing the system is that the old one did not have the capacity to capture the relations between the increased support costs and changes within the product mix. This all led to an increase in support costs, as costs in material and labor. Having a product mix with customized orders will lead to increases of costs due to the amount of material, labor, production and supported costs. Through the new system it is easier to identify which orders would be most profitable which leads to a better decisionmaking which give the new system greater value. But using the old system, they could not identify profitably orders ( har jag förstått rätt?)

 

2. Describe and compare some costing issues (of your own free choice, but it shall be motivated though) related to the use of traditional costing models(methods) including older versions of ABC vs. more “modern” versions such as later generations of ABC (activity based costing) or target costing procedures. The paper should include both a descriptive part as well as an analytical (problemizing) of the methods and their application of your choice. ABC-
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