Activity-based Activity-based Activity-based

ABC ABCABC

2. Activity-based Activity-based Activity-based

Activity-based

Cost of supplies per job $ 200.00 $ 250.00

Direct manufacturing labor cost per job 180.00 200.00 Indirect cost allocated to each job

(10 machine hours  $67.17 per machine hour) 671.70 671.70

Total costs $1,051.70 $1,121.70

Quantity

CostCost Cost

(see(see (see

CostCost Cost

Machine operations (400 jobs10 mach. hrs.

per job; 200 jobs10 mach. hrs. per job)

machine hours 4,000 2,000 $150,000 $ 25.00 per machine hour

Setups (4 400; 7200) setup hours 1,600 1,400 $ 90,000 $ 30.00 per setup hour Purchase orders (given) no. of purchase orders 400 500 $ 36,000 $ 40.00 per purchase order

Design $ 40,000

Marketing selling price $ 39,000 $ 0.05 per dollar of sales

Administration

($180 400; $200200)

dir. mfg. labor costs $72,000 $40,000 $ 48,000 $0.42857 per dollar of direct manuf. labor cost

Total

JobJob Job

Job

Cost of supplies ($200  400; $250  200) $ 80,000 $ 50,000 Direct manuf. labor costs ($180  400; $200  200) 72,000 40,000 Indirect costs allocated:

Machine operations ($25 per mach. hr.  4,000; 2,000) 100,000 50,000 Setups ($30 per setup hr.  1,600; 1,400) 48,000 42,000 Purchase orders ($40 per order  400; 500) 16,000 20,000

Design 8,000 32,000

Marketing (0.05 $1,200  400; 0.05  $1,500  200) 24,000 15,000 Administration ($0.42857  72,000; 40,000) 30,857 17,143

Total costs $378,857 $266,143

Cost of each job ($378,857  400; $266,143  200) $ 947.14 $1,330.72

Relative to the ABC system, the simple costing system overcosts standard jobs and undercosts special jobs. Both types of jobs need 10 machine hours per job, so in the simple system, they are each allocated $671.70 in indirect costs. But, the ABC study reveals that each standard job consumes less of the indirect resources such as setups, purchase orders, and design costs than a special job, and this is reflected in the higher indirect costs allocated to special jobs in the ABC system.

4. Quikprint can use the information revealed by the ABC system to change its pricing based on the ABC costs. Under the simple system, Quikprint was making a gross margin of 12%

on each standard job (($1,200 – $1,051.70)  $1,200) and 25% on each special job (($1,500 –

$1,121.70)  $1,500). But, the ABC system reveals that it is actually making a gross margin of about 21% (($1,200 – $947) $1,200) on each standard job and about 11% (($1,500 – $1,331) 

$1,500) on each special job. Depending on the market competitiveness, Quikprint may either want to reprice the different types of jobs, or, it may choose to market standard jobs more aggressively than before.

Quikprint can also use the ABC information to improve its own operations. It could examine each of the indirect cost categories and analyze whether it would be possible to deliver the same level of service, but consume fewer indirect resources, or find a way to reduce the per-unit-cost-driver cost of some of those indirect resources.

CostCost Cost

Cost

perper per

per

jobjob job

job

Standard Standard Standard

Standard

JobJob Job

Job

Special Special Special

Special

JobJob Job

Job

Simple Costing System $1,051.70 $1,121.70

Activity-based Costing System $ 947.14 $1,330.72 Difference (Simple – ABC) $ 104.56 $ (209.02)

5-13 5-225-22

5-22

(25 min.) AllocationAllocationAllocation

Allocation

The overall cost of educating each student is $15,600. Of this, $7,080 (or 45%) is spent on academic instruction and $3,320 (or 21%) is spent on administration.

2. Cost of ice hockey program $ 300,000

Total cost of activities without ice hockey program = $7,800,000 – $300,000 = $7,500,000 Per student cost of educational program without hockey = $7,500,000 500 = $ 15,000 3. Net cost of ice hockey program with $1,000 fee = $300,000 – (30  $1,000) = $ 270,000 Total cost of activities with ice hockey program fee = $7,500,000 + $270,000 = $7,770,000 Per student cost of educational program with hockey fee = $7,770,000 500 = $ 15,540 Charging a fee helps a bit but the net cost of the ice hockey program is still high and significantly increases the cost of educating each student

Percentage

20092009 2009

Teachers’ salaries and benefits 60% 20% 8% 12% $4,000,000

Principals’ salaries and benefits 10% 60% 5% 25% 400,000

Facilities cost 35% 15% 45% 5% 2,600,000

Office staff salaries and benefits 5% 60% 10% 25% 300,000

Sports program staff salaries and benefits 35% 10% 45% 10% 500,000

$7,800,000

Teachers’ salaries and benefits $2,400,000 $ 800,000 $ 320,000 $480,000 $4,000,000

Principals’ salaries and benefits 40,000 240,000 20,000 100,000 400,000

Facilities cost 910,000 390,000 1,170,000 130,000 2,600,000

Office staff salaries and benefits 15,000 180,000 30,000 75,000 300,000

Sports program staff salaries and benefits 175,000 50,000 225,000 50,000 500,000

Total $3,540,000 $1,660,000 $1,765,000 $835,000 $7,800,000

No. of students 500 500 500 500 500

Cost per student $7,080 $ 3,320 $3,530 $1,670 $15,600

Percent of total cost by activity 45% 21% 23% 11% 100%

Most of the costs at Harmon school are fixed in the short-run. So, Smith must try to recruit more students to the school. If, in the long run, it seems like the student population is going to be stable at around 500, he should plan how some of the excess capacity can be cut back so that the fixed school capacity is better utilized, that is, he should work to reduce the cost of excess capacity. One problem with that plan is that “cutting excess academic instruction capacity” may eventually mean reducing the number of sections in each grade and letting teachers go, and if this involves the loss of experienced teachers, that could cause long-term damage to the school.

Unrelated to the excess capacity issue, but with the aim of improving the school’s economics, he should consider doing away with expensive activities like the ice hockey program which raises the cost per student substantially, even after a large fee is charged from students who choose to play the sport.

Academic instruction capacity 600 students

Cost of academic instruction activity

(from requirement 1 calculations) $3,540,000

Cost of academic instruction per student at full utilization =

$3,540,000 600 $ 5,900

Academic instruction resource costs used by current student

population = 500  $5,900 $2,950,000

Cost of excess academic instruction capacity =

$3,540,000 – $2,950,000 $ 590,000

5-15 5-235-23

5-23

1. The simple costing system (Panel A of Solution Exhibit 5-23) reports the following:

2. The ABC system (Panel B of Solution Exhibit 5-23) reports the following:

These activity costs are based on the following:

3. The rankings of products in terms of relative profitability are:

Baked

MilkMilk Milk

Cost of goods sold

Store support (30% of COGS) Total costs

Operating income

Operating income ÷ Revenues

$57,000

MilkMilk Milk

Cost of goods sold

Ordering ($100 × 30; 25; 13) Delivery ($80 × 98; 36; 28)

Shelf-stocking ($20 × 183; 166; 24) Customer support

($0.20 × 15,500; 20,500; 7,900) Total costs

Operating income

Operating income ÷ Revenues

$57,000

MilkMilk Milk

$100 per purchase order

$80 per delivery

$20 per hour

$0.20 per item sold

1. Baked goods 13.33%

2. Frozen products 12.50 3. Milk & fruit juice 3.02

Frozen products 21.92%

Milk & fruit juice 5.08

Baked goods 2.46

The percentage revenue, COGS, and activity costs for each product line are:

The baked goods line drops sizably in profitability when ABC is used. Although it constitutes 31.67% of COGS, it uses a higher percentage of total resources in each activity area, especially the high cost delivery activity area. In contrast, frozen products draws a much lower percentage of total resources used in each activity area than its percentage of total COGS. Hence, under ABC, frozen products is much more profitable.

Family Supermarkets may want to explore ways to increase sales of frozen products. It may also want to explore price increases on baked goods.

Baked Baked Baked

Baked

Goods Goods Goods

Goods

MilkMilk Milk

Milk

Fruit Fruit Fruit

Fruit

Juice Juice Juice

Juice

Frozen Frozen Frozen

Frozen

Products Products Products

Products

Total Total Total

Total

Revenues COGS

Activity areas:

Ordering Delivery Shelf-stocking Customer support

33.14 31.67 44.12 60.49 49.06 35.31

36.63 39.17 36.76 22.22 44.50 46.70

30.23 29.16 19.12 17.29 6.44 17.99

100.00 100.00 100.00 100.00 100.00 100.00

5-17 SOLUTION

SOLUTION SOLUTION

SOLUTION

EXHIBIT EXHIBIT EXHIBIT

EXHIBIT

5-235-23 5-23

5-23

Product-Costing Overviews of Family Supermarkets PANEL A: SIMPLE COSTING SYSTEM

COST OBJECT:

PRODUCT LINE

Indirect Costs Direct Costs Store Support

COGS

COGS INDIRECT

COST POOL

COST ALLOCATION

BASE



DIRECT COST

PANEL B: ABC SYSTEM

Ordering Delivery

Shelf-Stocking

Customer Support

Number of Purchase Order

Number of Deliveries

Hours of Shelf-Stocking

Number of Items Sold

Indirect Costs Direct Costs

COGS INDIRECT

COST POOL

COST ALLOCATION BASE COST OBJECT:

PRODUCT LINE

DIRECT COST

5-245-24 5-24

5-24

(15–20 min.) ABC,ABC,ABC,

ABC,

wholesale, wholesale, wholesale,

wholesale,

customer customer customer

customer

profitability.

Chain Chain Chain

Chain

11 1

22 2

33 3

44 4

Gross sales $50,000 $30,000 $100,000 $70,000

Sales returns 10,000 5,000 7,000 6,000

Net sales 40,000 25,000 93,000 64,000

Cost of goods sold (80%) 32,000 20,000 74,400 51,200

Gross margin 8,000 5,000 18,600 12,800

Customer-related costs:

Regular orders

$20 × 40; 150; 50; 70 800 3,000 1,000 1,400

Rush orders

$100 × 10; 50; 10; 30 1,000 5,000 1,000 3,000

Returned items

$10 × 100; 26; 60; 40 1,000 260 600 400

Catalogs and customer support 1,000 1,000 1,000 1,000

Customer related costs 3,800 9,260 3,600 5,800

Contribution (loss) margin $ 4,200 $ (4,260) $ 15,000 $ 7,000 Contribution (loss) margin as

percentage of gross sales 8.4% (14.2%) 15.0% 10.0%

The analysis indicates that customers’ profitability (loss) contribution varies widely from (14.2%) to 15.0%. Immediate attention to Chain 2 is required which is currently showing a loss contribution. The chain has a disproportionate number of both regular orders and rush orders.

Villeagas should work with the management of Chain 2 to find ways to reduce the number of orders, while maintaining or increasing the sales volume. If this is not possible, Villeagas should consider dropping Chain 2, if it can save the customer-related costs.

Chain 1 has a disproportionate number of the items returned as well as sale returns. The causes of these should be investigated so that the profitability contribution of Chain 1 could be improved.

5-19 5-255-25

5-25

areaarea area

1. Direct costs

Direct materials $ 150,000

Indirect costs

Product support 983,000

Total costs $1,133,000

Cost per pound of potato cuts = = $1.133 000

2. CostCostCost

Cost

perper per

Cleaning $120,000 1,200,000 raw pounds $ 0.10

Cutting $231,000 3,850 hours* $60.00

Packaging $444,000 37,000 hours** $12.00

*(900,000 ÷ 250) + (100,000 ÷ 400) = 3,600 + 250 = 3,850

**(900,000 ÷ 25) + (100,000 ÷ 100) = 36,000 + 1,000 = 37,000

3. RetailRetailRetail

Retail

Direct costs

Direct materials $135,000 $15,000

Packaging 180,000 $ 315,000 8,000 $23,000

Indirect costs Cleaning

$0.10 × 90% × 1,200,000 108,000

$0.10 × 10% × 1,200,000 12,000

Cutting

$60 × 3,600 hours 216,000

$60 × 250 hours 15,000

Packaging

$12 × 36,000; $12 × 1,000 432,000 756,000 12,000 39,000

Total costs $1,071,000 $62,000

Pounds produced 900,000 100,000

Costs per pound $ 1.19 $ 0.62

Note: The total costs of $1,133,000 ($1,071,000 + $62,000) are the same as those in Requirement 1.

4. There is much evidence of product-cost cross-subsidization.

CostCost Cost

Cost

perper per

per

Pound Pound Pound

Pound

Retail Retail Retail

Retail

Institutional Institutional Institutional

Institutional

Simple costing system $1.133 $1.133

ABC system $1.190 $0.620

Assuming the ABC numbers are more accurate, potato cuts sold to the retail market are undercosted while potato cuts sold to the institutional market are overcosted.

The simple costing system assumes each product uses all the activity areas in a homogeneous way. This is not the case. Institutional sales use sizably less resources in the cutting area and the packaging area. The percentages of total costs for each cost category are as follows:

Retail Retail Retail

Retail

Institutional Institutional Institutional

Institutional

Total Total Total

Total

Direct costs

Direct materials 90.0% 10.0% 100.0%

Packaging 95.7 4.3 100.0

Indirect costs

Cleaning 90.0 10.0 100.0

Cutting 93.5 6.5 100.0

Packaging 97.3 2.7 100.0

Units produced 90.0% 10.0% 100.0%

Idaho can use the revised cost information for a variety of purposes:

a. Pricing/product emphasis decisions. The sizable drop in the reported cost of potatoes sold in the institutional market makes it possible that Idaho was overpricing potato products in this market. It lost the bid for a large institutional contract with a bid 30%

above the winning bid. With its revised product cost dropping from $1.133 to $0.620, Idaho could have bid much lower and still made a profit. An increased emphasis on the institutional market appears warranted.

b. Product design decisions. ABC provides a road map as to how to reduce the costs of individual products. The relative components of costs are:

Retail Retail Retail

Retail

Institutional Institutional Institutional

Institutional

Direct costs

Direct materials 12.6% 24.20%

Packaging 16.8 12.90

Indirect costs

Cleaning 10.1 19.35

Cutting 20.2 24.20

Packaging 40.3 19.35

Total costs 100.0% 100.00%

Packaging-related costs constitute 57.1% (16.8% + 40.3%) of total costs of the retail product line.

Design efforts that reduce packaging costs can have a big impact on reducing total unit costs for retail.

c. Process improvements. Each activity area is now highlighted as a separate cost. The three indirect cost areas comprise over 60% of total costs for each product, indicating the upside from improvements in the efficiency of processes in these activity areas.

5-21 5-265-26

5-26

(2025 min.) Activity-basedActivity-basedActivity-based

Activity-based

costing, costing, costing,

costing,

job-costing job-costing job-costing

job-costing

system.

1. An overview of the activity-based job-costing system is:

2. ActivityActivityActivity

Activity

Area Area Area

Area

Indirect Indirect Indirect

Indirect

Manufacturing Manufacturing Manufacturing

Manufacturing

Costs Costs Costs

Costs

Allocated Allocated Allocated

Allocated

1. Axial insertion $ 0.08  45 = $ 3.60

2. Dip insertion 0.25  24 = 6.00

3. Manual insertion 0.50  11 = 5.50

4. Wave solder 3.50  1 = 3.50

5. Backload 0.70  6 = 4.20

6. Test 90.00  .25 = 22.50

7. Defect analysis 80.00  .10 = 8.00

Total $53.30

Direct manufacturing costs:

Direct materials $75.00

Direct manufacturing labor 15.00 $ 90.00

Indirect manufacturing costs:

Manufacturing overhead (see above) 53.30

Total manufacturing costs $143.30

3. The manufacturing manager likely would find the ABC job-costing system useful in cost management. Unlike direct manufacturing labor costs, the seven indirect cost pools are systematically linked to the activity areas at the plant. The result is more accurate product costing.

Productivity measures can be developed that directly link to the management accounting system.

Marketing managers can use ABC information to price jobs as well as to advise customers about how selecting different product features will affect price.

POOL

BASE

COST

Direct Materials INDIRECT

COST

COST ALLOCATION

DIRECT



COST OBJECT:

PC BOARD

Indirect Costs Direct Costs Axial

Insertion

Number of Axial Insertions

Dip Insertion

Number of Dip Insertions

Manual Insertion

Number of Manual Insertions

Wave Solder

Number of Boards Soldered

Backload

Number of Backload Insertions

Test

Budgeted Time in Test

Defect Analysis

Budgeted Time in Analysis

ManufacturingDirect Labor DIRECT

COSTS

Direct Manufacturing

Labor

5-275-27 5-27

5-27

(30 min.) ABC,ABC,ABC,

ABC,

product-costing product-costing product-costing

product-costing

atat at

banks, banks, banks,

banks,

cross-subsidization.

The assumption that the Robinson and Farrel accounts exceed $1,000 every month and the Skerrett account is less than $1,000 each month means the monthly charges apply only to Skerrett.

One student with a banking background noted that in this solution 100% of the spread is attributed to the “depositor side of the bank.” He noted that often the spread is divided between the “depositor side” and the “lending side” of the bank.

2. Cross-subsidization across individual Premier Accounts occurs when profits made on some accounts are offset by losses on other accounts. The aggregate profitability on the three customers is $437.20. The Farrel account is highly profitable ($593.20), while the Robinson account is sizably unprofitable. The Skerrett account shows a small profit but only because of the

$240 monthly fees. It is unlikely that Skerrett will keep paying these high fees and that FIB would want Skerret to pay such high fees from a customer relationship standpoint.

The facts also suggest that the customers do not use the bank services uniformly. For example, Robinson and Skerret have a lot of transactions with the teller or ATM, and also inquire about their account balances more often than Farrell. This suggests cross-subsidization.

FIB should be very concerned about the cross-subsidization. Competition likely would

“understand” that high-balance low-activity type accounts (such as Farrel) are highly profitable.

Offering free services to these customers is not likely to retain these accounts if other banks offer higher interest rates. Competition likely will reduce the interest rate spread FIB can earn on the high-balance low-activity accounts they are able to retain.

Robinson Robinson Robinson

Robinson

Skerrett Skerrett Skerrett

Skerrett

Farrel Farrel Farrel

Farrel

Total Total Total

Total

Revenues

Spread revenue on annual basis (3%  ; $1,100, $800, $25,000) Monthly fee charges

($20 ; 0, 12, 0) Total revenues

$ 33 0 33

$ 24 240 264

$750.00 0.00 750.00

$ 807.00 240.00 1,047.00 Costs

Deposit/withdrawal with teller

$2.50  40; 50; 5

Deposit/withdrawal with ATM

$0.80  10; 20; 16

Deposit/withdrawal on prearranged basis

$0.50  0; 12; 60 Bank checks written

$8.00 9; 3; 2 Foreign currency drafts

$12.00 4; 1; 6 Inquiries

$1.50 10; 18; 9 Total costs

Operating income (loss)

100 8 0 72 48

15 243

$(210)

125 16 6 24 12

27 210

$ 54

12.50 12.80 30.00 16.00 72.00

13.50 156.80

$593.20

237.50 36.80 36.00 112.00 132.00

55.50 609.80

$ 437.20

5-23 3. Possible changes FIB could make are:

a. Offer higher interest rates on high-balance accounts to increase FIB’s competitiveness in attracting and retaining these accounts.

b. Introduce charges for individual services. The ABC study reports the cost of each service. FIB has to decide if it wants to price each service at cost, below cost, or above cost. If it prices above cost, it may use advertising and other means to encourage additional use of those services by customers. Of course, in determining its pricing strategy, FIB would need to consider how other competing banks are pricing their products and services.

5-285-28 5-28

5-28

(15 min.) JobJobJob

Job

costing costing costing

costing

withwith with

with

single single single

single

direct-cost direct-cost direct-cost

direct-cost

category, category, category,

category,

single single single

single

indirect-cost indirect-cost indirect-cost

indirect-cost

pool, pool, pool,

pool,

lawlaw law

law

firm.

1. Pricing decisions at Wigan Associates are heavily influenced by reported cost numbers.

Suppose Wigan is bidding against another firm for a client with a job similar to that of Widnes Coal. If the costing system overstates the costs of these jobs, Wigan may bid too high and fail to land the client. If the costing system understates the costs of these jobs, Wigan may bid low, land the client, and then lose money in handling the case.

2. WidnesWidnesWidnes

Widnes

St.St.

St.

Helen Helen Helen

Helen

’’’

’

sss

CoalCoal Coal

Coal

Glass Glass Glass

Glass

Total Total Total

Total

Direct professional labor,

$70 × 104; $70 × 96 $ 7,280 $ 6,720 $14,000 Indirect costs allocated,

$105 × 104; $105 × 96 10,920 10,080 21,000 Total costs to be billed $18,200 $16,800 $35,000

5-295-29 5-29

5-29

(20–25 min.) JobJobJob

Job

costing costing costing

costing

withwith with

1. Indirect costs = $7,000

Total professional labor-hours = 200 hours (104 hours on Widnes Coal + 96 hours on St. Helen’s Glass) Indirect cost allocated per professional labor-hour (revised) = $7,000 ÷ 200 = $35 per hour

2. WidnesWidnesWidnes

Widnes

CoalCoal Coal

Direct costs:

Direct professional labor,

$70 × 104; $70 × 96 $ 7,280 $ 6,720 $14,000

Research support labor 1,600 3,400 5,000

Computer time 500 1,300 1,800

Travel and allowances 600 4,400 5,000

Telephones/faxes 200 1,000 1,200

Photocopying 250 750 1,000

Total direct costs 10,430 17,570 28,000

Indirect costs allocated,

$35 × 104; $35 × 96 3,640 3,360 7,000

Total costs to be billed $14,070 $20,930 $35,000 3.

CoalCoal Coal

Problem 5-28 $18,200 $16,800 $35,000

Problem 5-29 14,070 20,930 35,000

The Problem 5-29 approach directly traces $14,000 of general support costs to the individual jobs. In Problem 5-28, these costs are allocated on the basis of direct professional labor-hours.

The averaging assumption implicit in the Problem 5-28 approach appears incorrect—for example, the St. Helen’s Glass job has travel costs over seven times higher than the Widnes Coal case despite having lower direct professional labor-hours.

5-25 5-305-30

5-30

withwith with

1. WidnesWidnesWidnes

Widnes

Direct costs:

Partner professional labor,

$100 × 24; $100 × 56 $ 2,400 $ 5,600 $ 8,000 Associate professional labor,

$50 × 80; $50 × 40 4,000 2,000 6,000

Research support labor 1,600 3,400 5,000

Computer time 500 1,300 1,800

Travel and allowances 600 4,400 5,000

Telephones/faxes 200 1,000 1,200

Photocopying 250 750 1,000

Total direct costs 9,550 18,450 28,000

Indirect costs allocated:

Indirect costs for partners,

$57.50 × 24; $57.50 × 56 1,380 3,220 4,600 Indirect costs for associates,

$20 × 80; $20 × 40 1,600 800 2,400

Total indirect costs 2,980 4,020 7,000

Total costs to be billed $12,530 $22,470 $35,000 Widnes

Single direct cost/

Single indirect cost pool $18,200 $16,800 $35,000 Multiple direct costs/

Single indirect cost pool $14,070 $20,930 $35,000 Multiple direct costs/

Multiple indirect cost pools $12,530 $22,470 $35,000

The higher the percentage of costs directly traced to each case, and the greater the number of homogeneous indirect cost pools linked to the cost drivers of indirect costs, the more accurate the product cost of each individual case.

The Widnes and St. Helen’s cases differ in how they use “resource areas” of Wigan Associates:

Widnes

CoalCoal Coal

Partner professional labor 30.0% 70.0%

Associate professional labor 66.7 33.3

Research support labor 32.0 68.0

Computer time 27.8 72.2

Travel and allowances 12.0 88.0

Telephones/faxes 16.7 83.3

Photocopying 25.0 75.0

The Widnes Coal case makes relatively low use of the higher-cost partners but relatively higher use of the lower-cost associates than does St. Helen’s Glass. As a result, it also uses less of the higher indirect costs required to support partners compared to associates. The Widnes Coal case also makes relatively lower use of the support labor, computer time, travel, phones/faxes, and photocopying resource areas than does the St. Helen’s Glass case.

2. The specific areas where the multiple direct/multiple indirect (MD/MI) approach can provide better information for decisions at Wigan Associates include:

Pricing and product (case) emphasis decisions. In a bidding situation using single direct/single indirect (SD/SI) or multiple direct/single indirect (MD/SI) data, Wigan may win bids for legal cases on which it will subsequently lose money. It may also not win bids on which it would make money with a lower-priced bid.

From a strategic viewpoint, SD/SI or MD/SI exposes Wigan Associates to cherry-picking by competitors. Other law firms may focus exclusively on Widnes Coal-type cases and take sizable amounts of “profitable” business from Wigan Associates. MD/MI reduces the likelihood of Wigan Associates losing cases on which it would have made money.

Client relationships. MD/MI provides a better “road map” for clients to understand how costs are accumulated at Wigan Associates. Wigan can use this road map when meeting with clients to plan the work to be done on a case before it commences. Clients can negotiate ways to get a lower-cost case from Wigan, given the information in MD/MI—for example, (a) use a higher proportion of associate labor time and a lower proportion of a partner time, and (b) use fax machines more and air travel less. If clients are informed in advance how costs will be

In document 145945883 Solucionario Contabilidad de Costos Horngren Datar y Foster (Page 135-157)