Product Costing

Steinway Piano : A Candidate for Activity Based Costing

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Introduction

Steinway and Sons is a company who manufactures piano in a unique way They have patented a process of bending a single continuous piece of wood for the inner and outer rim . Prior to this method , the inner and outer rim of pianos where built from different pieces , and glued together to achieve the shape required . Steinway and Sons also uses techniques that greatly improve the quality of sound . This includes the requirement of years of experience for different

craftsmanship required This also includes the selection for material quality . To ensure cosmetic beauty for a wood-finished instrument , all of the veneer on a single Steinway piano is cut from the same tree (Steinway Sons 1 This company produces different variants of their piano products as laid out in their collections , like the Legendary Collection , the Crown Jewel Collection , the Art Case Collection , the Ebony Grands and Verticals and the Limited Edition Collection Answer to Questions

Do you think that Steinway Piano is a good candidate for Activity Based Costing ? Why

Steinway Piano is a good candidate for Activity Based Costing (ABC because the manufacturing undergoes a step by step process involving various craftsman expertises . Since the process is already laid out step by step , the activities can easily be identified . The activities could be , rim-bending , pressing into dome shape , notching the bridge , and so on . After identifying , the cost per activity can easily be identified since the process is already patented over the years . From these identified activity and cost , the cost drivers can be identified followed by collection of activity data and eventually the final product cost can be identified by the direct and indirect labor cost

Another reason aside from the already laid out process of manufacturing are the involvement of various indirect labor cost . This makes the ABC costing appropriate because these indirect labor cost , which are commonly shared with other piano products like the rim bending machine the dome shape press , storage and other quality assurance methodologies are difficult to consider from a traditional costing perspective . In an ABC costing these are all considered in a per activity basis providing cost proportional to its actual contribution to the product . For example the dome shape press may be pressing boards for various piano models and the amount of contribution (time spent ) may vary from one piano model to another . The variation in time may be attributed to the differences in the material used providing different resistive force to bending

There is yet another factor that makes ABC more appropriate . According to the Steinway Piano Website , it takes years of training for the craftsman to know exactly where to place the notches (Steinway Sons 1 . These craftsmanship levels required may be associated with varying per hour rate . For example the person who places the notch who needs several years of experience may have a different hourly rate compared to somebody in storage division who simple moves...