Activity Base Costing
July 17, 2011
Evaluate the advice that Chuck Davis gave to Leonard Bryner and explain whether you agree or disagree with the advice.
Leonard gave Chuck information without investigating or taking a look at the problem with their firm. Leonard was attempting to see why they were losing market share to the company’s competitors because they were losing bidding wars. Chuck felt the current policies to controlling cost were adequate and chose not to evaluate the company using Activity Based Costing (ABC).
ABC is a method of evaluating the cost of providing products and services by activity. Under this method cost is evaluated by dividing a firm into operational sectors and conducting interviews or issuing survey to gather information needed to see how much it cost to provide a product or service. Once the information is gathered and evaluated it provides a substantiated accurate cost for producing a product.
I do not agree with Chuck, and I feel that he should have inquired about the current job costing method. A comparison of the two methods would provide a course of action for examining the firm loss of market share problem. I think the ABC method would have painted a clearer picture of company’s position within its industry.
Discuss whether or not there was anything wrong or unethical in the behavior that Chuck Davis displayed.
I don’t think there was anything unethical in Chuck’s action, but I do feel that he was wrong by not taking the time to inquire about the decrease in business. Chuck believe the company was going through a historical trend as it did 12 years ago when sales were decreased and improved after a two year period. Chuck should have applied ABC to see if indeed it were an answer to his problem. In my opinion I think Chuck was being over confident in a system he developed or he was being lazy by not taking investigative actions to solve the firm’s...