Question

In conducting interviews and observing factory operations to implement an Activity Based Costing system, you discover several activities that are unnecessary or redundant. For example, warehouse personnel were inspecting purchased components as they were received at the loading dock. Later that day, the components were inspected again before being installed in the final product. Both of these activities caused costs to be incurred but were not adding value to the product. If you included this observation in your report, one or more employees who perform inspections will likely loose their jobs.

Here's a couple questions you could consider as you formulate your response:

1. As a plant employee, what is your responsibility to report these findings to your superiors?

2. Should you attempt to determine if the redundancy is justified?

3. What is your responsibility to the employees who may lose their jobs because of your report?

4. What other factors might you consider before making your decision to report or not?

Please respond once or twice to the topic and two or three times to classmates for a total of four posts in order to receive full credit.

Answer 1

1. The findings should be reported based on the facts and observations made during the study of the activities as part of Activity Based costing implementation. Activity based costing is implemented as part of improving the costing system in the plant. Hence all value and non value adding activities should be bifurcated and reported as part of findings in the report. The purpose of implementation of ABC costing is to improve product costing and manage costs incurred.

2. No, the redundancy should not be justified. The study should be limited to activities and whether each activity is value adding or not

3. As such there is no responsibility to the employee who may lose his job because of the report. But he can be given a brief to make him understand the background of ABC costing method, its implementation benefits and how management might consider re-allocate him to other departments where there are value adding activities to the product.

4. Other factors to consider before making the report or not

· Any other value adding activity needed in the same department to improve the process

· Re-allocation of the employee to other value adding activities

· Cost benefit analysis of the benefits from activity to be eliminated vs. savings