1. Advanced Cost Accounting Implementation Guide
  2. The Decision Making Process

The Decision Making Process

This example illustrates the decision making process.

Company 200 manufactures and distributes bicycles and bicycle accessories, using these business units:

  • M30 to manufacture bicycles.

  • D30 to distribute bicycles.

Company 200 sells products to wholesale and retail customers. Each customer has a unique address book number, and Company 200 assigns each customer to a business channel. Although many channels exist, Company 200 uses these:

  • Wholesale

  • Retail

  • Specialty

  • Discount

The bicycles and accessories have unique inventory item numbers. Although many types of bicycles and accessories exist, the company focuses on three types of bicycles and two types of bicycle bags. The bicycle types are:

  • Touring

  • Mountain

  • Youth

Black bicycle bags can be imprinted with a predetermined logo or left blank. When the company originates its bicycle sales, the customer can decide whether he or she wants plain black bicycle bags, standard logo imprinted bags, or special custom logos on the bags. The bag types are:

  • Imported bags

  • Black with logo

  • Black without logo.

  • Domestic bags: Black without logo

The company categorizes its products by planning families. Within this scenario, it focuses on two family codes:

  • Bicycle

  • Bicycle accessory

Within the Distribution business unit, D30, the merchandise can incur royalty and warehouse costs, in addition to the initial cost. The business unit has adopted standard costs (inventory and sales method 7) to help track each of these cost components. Depending upon type, the bicycles and bags can contain these cost components:

  • Material, component type A1

  • Royalty, component type X4

  • Warehouse, component type X6

The company believes hidden costs exist in the procurement, manufacturing, and distribution cycles. Therefore, the company wants to determine the customer, product family, or marketing sales channel profitability, as well as internal process costs that are related to manufacturing its bicycles and various suppliers costs by suppler, product family, or marketing sales channel.