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Compact case
Case from journal
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Reference no. IECJ0113C-C
Simplified Chinese language
Authors: Audrey Taylor
Published by: IMA - The Association of Accountants and Financial Professionals in Business
Published in: "IMA Educational Case Journal", 2008

Abstract

This is a Simplified Chinese version. A fictional example demonstrates the danger of using fully allocated costs, even ABC, to determine the profitability of a newly proposed product line. Using marginal costing improves the solution but does not fully consider the option of increasing capacity. In order to determine whether capacity should be increased additional analysis must be done that focuses on the best way to use constraints and simultaneously balance demand against risk. The main focus of the case is the behavior of step-fixed costs. Capacity usually must be purchased in lumps that are rarely divisible. Students seldom have the opportunity in cases to deal with step-fixed costs and changing capacity. This case allows them to do both.
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Abstract

This is a Simplified Chinese version. A fictional example demonstrates the danger of using fully allocated costs, even ABC, to determine the profitability of a newly proposed product line. Using marginal costing improves the solution but does not fully consider the option of increasing capacity. In order to determine whether capacity should be increased additional analysis must be done that focuses on the best way to use constraints and simultaneously balance demand against risk. The main focus of the case is the behavior of step-fixed costs. Capacity usually must be purchased in lumps that are rarely divisible. Students seldom have the opportunity in cases to deal with step-fixed costs and changing capacity. This case allows them to do both.

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