Siemens Electric Case

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Siemens Electric Motor Work (A) (Abridged)
Siemens Corporation, one of the world’s largest electrical and electronic products producer, has been in business trouble due competitive environment and high costs. Its largest group, Electric Motor Works (EMW) has been focusing on producing standard as well as customized motors and found out that Siemens has great profitability in producing low volume customized A/C motors. To successful implement this new strategy, not only has EMW renovated the shop floors for process improvement, but also redesigned the components of motors. However, as the strategy implementing, the traditional cost system seemed to be inappropriate. Before, a departmental method was used for overhead allocation, which could not reflect accurate information on customized motors. Overhead costs were simply separated into three groups. While materials related and support related categories were allocated to products based on different drivers, production related overhead was traced to cost centers directly. In order to overcome issue of accuracy, EMW identified key departmental costs drivers and was trying to adopt activity-based cost system.

Issues and Problems
(1) Different from the traditional cost system, the simple activity-based costing system has broken up support related costs into more specific costs pools and enables support related costs to be traced according to the increase of number of orders as well as demands of special components. However, the allocation bases of materials related overhead, production overhead and the rest of support related overhead remain unchanged. As a result, analysis of these overhead related activities is needed for further refinement.
(2) According to the extensive study, EMW should have been focusing on producing the profitable low-volume customized motors but based on the number of orders and…...

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