The other category is still nearly 20 of the total

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The other category is still nearly 20% of the total cost. Management needs to fully understand what goes into that cost and reduce cost wherever possible. It is difficult to judge whether the activities are value added or non-value added until better information is available. The only activity that is clearly value added is making the product. However, based on the ABC analysis, making accounts for only 27% of the total cost. Although the Soap Team Manager and accountant based the ABC analysis on several assumptions, it provides management information that they can use to reduce or eliminate non-value-added activities. The response in Exhibit 7 answers both Requirements 4 and 5, but many students
answer these questions separately. Students commonly respond to Requirement 5 that management should eliminate the Tiny Bar from Consumer Brands’ product line. However, the case does not contain enough information to allow students to make that recommendation. After we return the case, we discuss items management should consider before making product line decisions and other strategic implications of the case. Exhibit 8 presents several items management should consider in light of the ABC study before making product line decisions. Exhibit 8. Consumer brands inputs into product decisions. . Can consumer brands increase the sales price of the Tiny Bar? Market factors, not cost normally establish prices. Under costing of products often leads to under pricing. Competition will normally indicate over costing and overpricing, but the market indicates under costing and under pricing much less lucidly. A pump manufacturer, for example, asked the authors why his sales force was so enamoured with the sale of specialty pumps. The answer was that the pumps were under costed; therefore, under priced and easy to sell. Instructional Case—Activity-based Costing 399 . Will demand for the company’s other products change if the company eliminates the Tiny Bar? For example, does Consumer Brands sell the Tiny Bar to institutions such as hotels and motels that will stop purchasing other company products if the Tiny Bar is not available? If Consumer Brands’ customers view the three bar sizes as substitutes for each other, then sales of the other two sizes may increase. If customers view Tiny Bar as a product that complements the other two bars, then sales of the other two sizes may decrease. . Will Consumer Brand’s costs actually decrease if they eliminate the Tiny Bar and if so by how much? Only five employees work exclusively on Tiny Bar production. Labour
cost will decrease by those five employees, but other costs may or may not decrease. . If demand for the other two sizes does not increase, there may be additional downtime where the company is not producing product and subsequently not earning revenue.

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