Andrew, electronics division manager, is not happy with the recent results reported related to activity-based management (ABM) implementation projects in the division.

One of them, the project took eight months longer than projected and has exceeded approved budget by nearly 35 percent. But more annoying is the fact that after all was done, all factory managers reported that activity-based product costs are not much different from old (traditional) system costs. The factory manager said that they continued use old system costs because it is easier to calculate and understand. However, on the same time, they complain of difficulty in compete with competitors. Source that can be relied upon to reveal that the electronics division's product costs are more higher than its competitors. These results confuse all factory managers because their control system still already report that the deviation of raw material still profitable and creating labor efficiency. They complained that Activity Based Management (ABM) failed resulting in significant cost performance improvements.

Andrew decided to visit some factories and talk to the manager factory. After the visit, he realized that his manager did not understand the concept of non-value-added cost and also do not have a good understanding of the concept of Kaizen cost. Nor the managers not attempt to carefully analyze information activity

which has been generated. In a meeting one of factor manager, Tony, said "This is too much data. Why should I care about all these details? I don't see how this can help me improve performance the factory. They tell me that inspection is not a necessary activity and does not add value. I really don't believe that inspection is non value added and not necessary. If we don't do inspection, we will make and sending more bad products to customers.

a. Explain why the Andrew division has problems with its ABM implementation!

b. Assume that you are a member of top management in a large organization. Do you think implementing ABM will be useful? Explain the reason for your answer!