Siemens Electric Motor Works (A)
Siemens EMW found makes a decision to move from mass production of specialty motors to the production of small lots of custom motors to survive competition. In doing so, they found their old cost system led them to poor decision-making. By making few simple modifications to their costing system, the firm was able to regain their competitive advantage.
Prepare the following questions:
1. How does the traditional and the PROKASTA cost systems trace the overhead costs of order processing and special components handling to the products?
2. Calculate the cost of the five orders in Exhibit 4 under the traditional and PROKASTA systems. Hint: first calculate the PROKASTA cost of processing an order and handling a special component.
3. Does the PROKASTA system support the strategy of the firm in ways that the traditional system cannot?
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