Global Electronics, Inc.: ABC implementation and the change management process
Brewer, Peter CView Profile; Juras, Paul EView Profile; Brownlee, E Richard, IIView Profile. Issues in Accounting Education18.1 (Feb 2003): 49-69.
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Descriptions of activity-based costing systems have become a standard part of managerial accounting texts. While ABC implementation issues are the focus of a number of articles, these issues are often not addressed in a typical textbook. A case is designed to familiarize one with the behavioral and technical variables that can aid or impede successful ABC implementation. Anderson's (1995) factor-stage model provides a template to …show more content…

Conversely, GEI consistently captured high-- margin, low-volume specialty business opportunities. The comments of a product engineer sum it up:

I think the labor-based cost system is fairly inaccurate and creates some misperceptions. For example, the logic product line, which is a mature high-volume product, is bearing a lot of the total factory costs, thereby making the new lower-- volume specialty products look cheaper. The perception is that we are doing well on all sides, except for logic, which looks marginally unprofitable. We can't just keep throwing money at the new products and let the more mature product lines take up the slack, actually covering their costs falsely.

GEI's product engineers intuitively understood the shortcomings of the existing labor-based standard cost system. For example, they knew that producing low-volume, specialty orders added complexity to the manufacturing process that was not reflected in the cost system. Accordingly, in January 1999, the product engineers created an offline costing system called Product Unit Cost (PUC) in an attempt to rectify the company's product-cost-distortion problems. The PUC system used time as a driver, in addition to labor, by looking at the elapsed time a product spent in fab, probe, assembly, and test. This approach eliminated some of the distortion; however, rather than reconcile the difference between the PUC system and the direct labor-based standard cost system, both costs were tracked. With