SIEMENS ELECTRICMOTORS

MANAGEMENT ACCOUNTING

GROUP 12:

MATTEO DE ANNA

MARSHELLA OOSTERBEEK

MARTIN RANDBY

MARTIN RODIAN PEDERSEN

MARIKA TORCITTO

MARTA ZUGLIANO

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AGENDA

•Current situation: 1987

•Change in strategy

• Traditional costing system

• Problem

•Solution

•Conclusion

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SIEMENS: EMW FROM 1937 TO 1987

Motors

•Standard motors: 80% of sales

volume

•Customized motors: 20% of sales

volume

Increase of competitiviness

on the market

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CHANGE IN STRATEGY

EMW could not lower its costssufficiently

CHANGE IN

STRATEGY

They changed their main focus to customized engine

They decreased their overallvolume

However standard motors stillaccounted for half of the totalannual output

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TRADITIONAL COSTINGSYSTEM (1)

MATERIAL AND LABOUR COSTS WERE

ASSIGNED DIRECTLY TO THE PRODUCTS

OVERHEAD COSTS

MATERIALS PRODUCTION SUPPORT

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TRADITIONAL COSTING SYSTEM (2)

• Cost of each motor increases as the number of special components increases

• Cost per unit is flat regardless of the number of units ordered

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SOLUTION

• «Without the new cost system, our new

strategy would have failed»

(Mr. Lottes, director of Business Operations)

They transferred support related costs in to two new cost pools:

SPECIAL COMPONENTS

COSTS

ORDER PROCESSING COSTS

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NEW COSTING SYSTEM

Total costs Amount Rate per unit

Special components

$ 19.500.000 325.000 $60,00

Orderprocessing

$ 13.800.000 65.625 $210,29

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CONCLUSION (1)

$376.92

$613.89

$370.63

$420.39

$713.49

$416.23

OLD NEW (1 UNIT) NEW (10 UNITS)

Cost per unit

A B

The old system inaccurately represents, for orders smaller than 10 units, the true costs for

fulfilling each orderMT

CONCLUSION (2)

THE NEW COSTING SYSTEM IMPROVES THE

DECISION-MAKING PROCESS BY:

Identifying thoseorders they

should accept

Allocatingcost more accurately

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QUESTIONS?MT