Steinway Piano as a Candidate for Activity Based Costing
I think that Steinway Piano is a good candidate for Activity Based Costing. The unique manufacturing process adopted by Steinway involves complex and diversified processes for ensuring maximum standardization for the finished products. As it involves varied steps for processing, the actual cost incurred for each step of the process can be identified through applying activity-based costing. “Activity-Based Costing (ABC) is an accounting technique that allows an organization to determine the actual cost associated with each product and service produced by the organization without regard to the organizational structure.” (Pandya).
The unique method for creating pianos adopted by Steinway Piano involves different process steps. The rims of the piano are manufactured as separate pieces first, and then these are conjoined. For ensuring the accuracy and standardized quality of the manufacturing process, the hand of experienced craftsmen is needed. Different types of raw materials are required for the process, such as wood, black graphite, cast iron plate, etc. For the acquisition of these resources economically, activity-based costing is essential. Activity-based costing is a more efficient method to find out the true profitability of the products and services offered by the company. It is also helpful for identifying the non-value-added activities in the production process, and thus cost can be reduced by eliminating the unnecessary cost elements and improving production efficiency. Through the adoption of ABC in the cost calculation, the organization can better inform the employees about the various costs involved in their process, and thus adequate cost control measures can be applied. The activities having no value in the process can easily be found out and eliminated through activity-based costing.