SvenskStl, AB, is a steel-producing company located in Solentuna, Sweden. The company originally produced only specialty steel

SvenskStål, AB, is a steel-producing company located in Solentuna, Sweden. The company originally produced only specialty steel products that were made to order for customers. A job order product costing system has been used for the made-to-order products. This year, after purchasing three continuous processing work cells, the company created a new division that produces three types of sheet steel in continuous rolls. Ingrid Bjorn, the company controller, has redesigned the management accounting system to accommodate these changes and has installed a process costing system for the new division.

At a recent meeting of the firm’s executive committee, Bjorn explained that the new product costing system uses three Work in Process Inventory accounts, one for each of the three new work cells. The production superintendent questioned the need to change product costing approaches and asked why so many new Work in Process Inventory accounts were necessary.

Why did Bjorn install a process costing system? Was a new division necessary, or could the three work cells have been merged with the old production facilities? Why were three Work in Process Inventory accounts required? Could the single Work in Process Inventory account used for the specialty orders have tracked and accumulated the costs incurred in the new work cells?