Keavney Ltd has been operating using the conventional costing system to evaluate its product costs. As a management accountant different, more accurate costing systems can be implemented to suit the company and its products. In regards to Keavney’s three products Gammy, Tiggy and Whinny the implementation of a new costing system ABC will show how misleading the conventional costing system can be. Before implementing the ABC costing system we will analyse product performance based on its profit in the conventional system.
The annual profits based on the units sold for the three products found that product G is the least profitable for Keavney. When comparing product G to W and T the annual profit for product G was $528,000 compared to the profit for product W and T which were $1,254,000 and $3,813,750 respectively. (Appendix 17)
All products were found to be profitable under the conventional costing system implemented at Keavney. Management accountants are able to dissemble costs and allocate them to where they are absorbed most. Under a costing system such as activity based costing, it may be able to show products running at a deficit whereas conventional systems may not be able to discover.
Keavney’s competitors may have a diverse reaction in regards to the firms pricing strategy. His pricing strategy would have his competitors confused to as why he hasn’t utilised his monopolistic position in regards to Whinny even though he is the only supplier in the market for this product. This is as Whinny is still not giving him a profit or sales that would be expected for a monopolistic product. As a competitor it would be seen that Keavney does not have a good pricing strategy as he is not utilising the amount of profit he can make per unit. In regards to Gammy and Tiggy, Gammy sells very close to its cost price which suggests to competitors that he’s of no threat to the sale of their products and Tiggy seems to be safe as it sells at its budgeted...
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