The management of KVT has hired your consulting firm to prepare a report to be given to the Board of Directors.
Your report should:
• Explain the potential advantages that ABC offers firms in the costing of their products.
• Briefly describe how an activity based product costing system can be extended from unit product costs to focus on various other cost objectives.
• Determine the profitability of each customer group (large, medium and small) and average profitability of each customer within each group. (This should be supported by printouts from a spreadsheet completed on a template obtainable in the ‘blackboard’ assessments folder)
• Identify strategic issues that may arise from the results of the profitability analysis and other avenues that may be worth exploring further. These avenues may include both the consideration of the validity of implicit assumptions and also opportunities that may be worth pursuing.
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