Alternative Costing Methods: Precision Paint Shop’s Dilemma

Alternative Costing Methods: Precision Paint Shop’s Dilemma

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In this case students are presented an opportunity to identify the various roles a costing system can play in supporting strategic management decisions. The setting is a privately held custom coater of automotive components to original equipment manufacturers (OEMs). Historically the company took just about all the work it was offered and management was using a form of standard costing to evaluate product profitability. Demand was increasing but along with the increase in volume came a decrease in profits and management could not understand why. There had been a recent switch to an ABC system to better understand the costs associated with painting the various products, but now management is unsure if this system is providing the information they need for effective decision making. Throughput ...

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