We have found our answer, activity-based costing it is,” exclaimed Roger Lalonde, general manager of a multi-departmental medium-sized manufacturing company. Roger had recently attended a seminar which touted activity-based costing as the solution for all managerial problems. However, controller Marie Walters was not too sure about the solution. She believed she had a developed a good system to allocate costs to individual departments to compute departmental income. Therefore, she was nervous about Roger’s strong attraction to activity-based costing.
“I wonder what he is thinking and where he wants to go with this new fad” she wondered, and headed to Roger’s office.
Walters: Lalonde: Walters: Lalonde:
Roger, I can see you are enthusiastic about this new activity-based costing. I think we must be cautious about implementing anything like that.
Why do you say that Marie? Isn’t this right up your alley? I was going to come talk to you to lead this project.
I don’t know if I am as enthusiastic as you are. Think about this, we have a nice system that our department managers understand.
They may understand but I am not so sure all the department managers are happy with the way indirect expenses are assigned to their departments. And you know that our indirect expenses are high.
I was not aware that our managers are unhappy about the allocation of our indirect costs. I’ll have to look into this.
Marie Walters has approached you for some advice. What advice would you give her?