Description
The case examines how DCPM, a subsidiary of a multinational company, uses activity cost information to revise its pricing strategy to compete with the generic herbicide products, as the patent protection of its main herbicide product is coming to an end
Activity Based Costing- THE CASE OF A HERBICIDE PRODUCT COMPANY
The Herbicide Product Company-DCP (M) Sdn Bhd (DCPM)
Established in 1973
Subsidiary of a multinational company which sells herbicide, fungicide and pesticide products and services to the agriculture sector Sells crop protection products and it is committed to a high level of product safety, health and environment protection
One of the top suppliers of herbicide products in Malaysia
The Industry and the market competition
Metrix captured 19% of the sales of herbicide products to the plantation sector and 14.1% of the total sales of herbicide products in Malaysia in 2004
Huge upcoming competition for DCPM from generic product suppliers due to loss of patent protection in 2008
Price of Metrix to be reduced from RM68 per kg in 2006 to RM40 per kg in 2008 for it to stay competitive and to earn the targeted minimum 30% mark-up
Traditional Costing of the Herbicide Product, Metrix
The Product • imported in 25-kg drums • re-packaged into 50 gm, 100 gm and 250 gm packs
Accounting Cost Heads
• Purchasing costs (direct costs) • Repackaging costs (direct costs) • Overhead costs (indirect costs) • Product Delivery Costs • Selling and commission costs • Research and Development costs • General administration costs
Competitive Strategy: Innovative Initiatives and Value-Added Services
Differentiation strategy
• Pre- and Post-Sales Services • Bottle Recycling Service • Protective Clothing • Discount for Bulk Pack • Customer Database
Activity-Based Costing (ABC) Approach to Costing of Product and Value-Added Services
Traditional costing fails to identify the costs of the various activities associated with the provision of the different types of value-added services demanded by the customers.
The pricing strategy revised based on the needs and pricesensitivities of customers
The product and service costs segregated for competitive pricing purpose.
Customers given the option to select from the different combinations of product and services
Product without value-added services
Suggestions
Direct management’s attention to activities that add little or no value and hence eliminate non-value added activities Reengineering in long run to further improve their manufacturing and service efficiency Sales forecasting & positioning SCM & awareness R& D
CHALLENGES
More resources being needed to implement the accounting system
change
Human resistance to change
The budgeting process may also have to be revised to allocate costs based on activity cost drivers rather than the traditional volume-based approach.
Thank you
doc_104035909.pptx
The case examines how DCPM, a subsidiary of a multinational company, uses activity cost information to revise its pricing strategy to compete with the generic herbicide products, as the patent protection of its main herbicide product is coming to an end
Activity Based Costing- THE CASE OF A HERBICIDE PRODUCT COMPANY
The Herbicide Product Company-DCP (M) Sdn Bhd (DCPM)
Established in 1973
Subsidiary of a multinational company which sells herbicide, fungicide and pesticide products and services to the agriculture sector Sells crop protection products and it is committed to a high level of product safety, health and environment protection
One of the top suppliers of herbicide products in Malaysia
The Industry and the market competition
Metrix captured 19% of the sales of herbicide products to the plantation sector and 14.1% of the total sales of herbicide products in Malaysia in 2004
Huge upcoming competition for DCPM from generic product suppliers due to loss of patent protection in 2008
Price of Metrix to be reduced from RM68 per kg in 2006 to RM40 per kg in 2008 for it to stay competitive and to earn the targeted minimum 30% mark-up
Traditional Costing of the Herbicide Product, Metrix
The Product • imported in 25-kg drums • re-packaged into 50 gm, 100 gm and 250 gm packs
Accounting Cost Heads
• Purchasing costs (direct costs) • Repackaging costs (direct costs) • Overhead costs (indirect costs) • Product Delivery Costs • Selling and commission costs • Research and Development costs • General administration costs
Competitive Strategy: Innovative Initiatives and Value-Added Services
Differentiation strategy
• Pre- and Post-Sales Services • Bottle Recycling Service • Protective Clothing • Discount for Bulk Pack • Customer Database
Activity-Based Costing (ABC) Approach to Costing of Product and Value-Added Services
Traditional costing fails to identify the costs of the various activities associated with the provision of the different types of value-added services demanded by the customers.
The pricing strategy revised based on the needs and pricesensitivities of customers
The product and service costs segregated for competitive pricing purpose.
Customers given the option to select from the different combinations of product and services
Product without value-added services
Suggestions
Direct management’s attention to activities that add little or no value and hence eliminate non-value added activities Reengineering in long run to further improve their manufacturing and service efficiency Sales forecasting & positioning SCM & awareness R& D
CHALLENGES
More resources being needed to implement the accounting system
change
Human resistance to change
The budgeting process may also have to be revised to allocate costs based on activity cost drivers rather than the traditional volume-based approach.
Thank you
doc_104035909.pptx