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    1) The document compares the traditional and PROKASTA costing systems for Siemens Electric Motor Works. It calculates the costs of 5 sample orders under each system and shows that PROKASTA results in lower unit costs, especially for higher order volumes. 2) A graph is suggested to show how costs per unit decrease with increasing order volume under PROKASTA but remain constant under traditional costing. This cost behavior supports Siemens' strategy to pursue larger order volumes. 3) The PROKASTA system better supports Siemens' new strategy by effectively allocating overhead costs based on special components and order processing. It provides useful cost information to help management decide which orders are profitable.

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    1) The document compares the traditional and PROKASTA costing systems for Siemens Electric Motor Works. It calculates the costs of 5 sample orders under each system and shows that PROKASTA results in lower unit costs, especially for higher order volumes. 2) A graph is suggested to show how costs per unit decrease with increasing order volume under PROKASTA but remain constant under traditional costing. This cost behavior supports Siemens' strategy to pursue larger order volumes. 3) The PROKASTA system better supports Siemens' new strategy by effectively allocating overhead costs based on special components and order processing. It provides useful cost information to help management decide which orders are profitable.

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    113 views3 pages

    Docx

    Uploaded by

    bilal
    1) The document compares the traditional and PROKASTA costing systems for Siemens Electric Motor Works. It calculates the costs of 5 sample orders under each system and shows that PROKASTA results in lower unit costs, especially for higher order volumes. 2) A graph is suggested to show how costs per unit decrease with increasing order volume under PROKASTA but remain constant under traditional costing. This cost behavior supports Siemens' strategy to pursue larger order volumes. 3) The PROKASTA system better supports Siemens' new strategy by effectively allocating overhead costs based on special components and order processing. It provides useful cost information to help management decide which orders are profitable.

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    of 3

    Siemens Electric Motor Works (A) Questions

    1. 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.
    Traditional System
    Order A B C D E
    Base Motor Cost 247 247 247 247 247
    Special Component Cost 32.2 64.4 96.6 161 322
    Total Materials & MFG Costs 279.2 311.4 343.6 408 569
    Support Related OH (35%) 97.72 108.99 120.26 142.8 199.15
    Total 377 420 464 551 768
    Cost of Processing and Handling: PROKASTA
    Cost (000) Amount Rate
    Special Components 19,500 325,000 60
    Order Processing 13,800 65,625 210.29

    PROKASTA System
    Order A B C D E
    Base Motor Cost 304 304 304 304 304
    Special Motor Costs 39.6 79.2 118.8 198 396
    Special Component Handling 60 120 180 300 600
    Order Processing Costs 210.29 210.29 210.29 210.29 210.29
    Total 613.89 713.49 813.09 1,012 1,510

    2. Calculate traditional and PROKASTA unit costs if 1 unit, 10 units, 20 units, or 100
    units are ordered. Graph the product costs against volume ordered and explain how
    the graph can help support Siemens’s strategy.
    Traditional System:
    Order A B C D E
    1 376.92 420.39 463.86 550.80 768.15
    10 3,769.20 4,203.90 4,638.60 5,508.00 7,681.50
    20 7538.40 8,407.80 9,277.20 11,016.00 15,363.00
    100 37,692.00 42,039.00 46,386.00 55,080.00 76,815.00
    PROKASTA System:
    Order A B C D E
    1 613.89 713.49 813.09 1,012.29 1,510.29
    10 3,706.29 4,162.29 4,618.29 5,530.29 7,810.29
    20 7,142.29 7,994.29 8,846.29 10,550.29 14,810.29
    100 34,630.29 38,650.29 42,670.29 50,710.29 70,810.29
    3. Does the PROKASTA system support the strategy of the firm in ways that the
    traditional system cannot? Is Mr. Karl-Heinz Lotts overestimating the value of
    PROKASTA?

    The new strategy of the firm caused the traditional cost system of costing to become
    outdated. Management’s concern with the traditional cost system was in it’s inability
    to capture the relation between the increased support costs and the change in product
    mix. The PROKASTA system has helps allocate overhead effectively causing the
    cost burden on all motors to be minimized. The new system allocates support related
    costs based on special component and order processing, which can be seen in the
    graph above. This effective way of allocating support related costs supports Mr. Karl-
    Heinz Lotts valuation of the new system. The new system generates product costs
    information that helps management appropriately chose which orders would be
    profitable and should be accepted.

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