Case Name :      Breeden Electronics (B)

Authors :           Luann J. Lynch

Source :             Darden School of Business

Case ID :           UV1732

Discipline :        Finance

Case Length :    06 pages

Solution Sample availability : YES

Plagiarism : NO (100% Original work)

This case builds on the A case. Marlene Baer, the controller of Breeden Electronics, recognizes that grouping all manufacturing overhead costs together and allocating them to Breeden’s two products is not very accurate. She groups overhead costs by activity and then allocates them to the two products. The system resembles a simple activity-based-costing system. This is the second in a series of three cases that can be used to explore the evolution of cost systems. The main issues of the three cases are as follows: in the A case, the company uses a traditional costing system. The main questions relate to breakeven analysis and the effect of inventory buildup on profit. The B case introduces the definition of activities, costing those activities, and computing product cost based on their use of the activities. The revised product costs are not dramatically different, but analyzing what causes the differences is important to discovering where ABC can provide valuable information. The C case takes place after the end of the year, when profits have been reduced by the need to take care of a growing and increasingly complex packing and shipping activity. The controller defines a new activity (order handling), computes the cost per order, and begins to revise the data on product profitability and to develop new data on customer profitability. Having discovered the high cost of handling each order, the controller now has good reason to work on activity-based management: making that process more efficient, and perhaps more customer friendly.