Crocargo Logistics Essay Example | Topics and Well Written Essays - 2250 words

Crocargo Logistics - Essay Example The business has been unable to generate enough capital to increase the ultimate profitability of the firm. The fundamental problem highlighted in this case is that of an inadequate costing system and an internal environment characterized by friction. The company is operating in a very hostile and competitive marketplace. The costing system that is needed to support the operations of the company is totally inadequate to keep the company operational for a very long time. The current costing system has been developed by the company’s operations manager who is more than satisfied with her costing system. She is not willing to take anyone’s opinion regarding the problems inherent in her system, as a result of which the company is not accounting for the costs it is actually incurring. The general manger of the company has finally realized this problem and has called for an external help who would suggest a more competitive costing method. Introduction An activity-based costi ng technique is one of those techniques which enable a company to identify its costs objects more accurately. This aspect of this technique has profound implications on a business, for instance it allows a company to identify unnecessary costs, price its products or services more efficiently and last but not the least it allows a company to be more competitive in its industry. ... So it goes like more the environment is competitive, more the costing system needs to be sophisticated. The costing system should effectively match costs with different cost objects. All these objects are integral to the ABC costing system (Brimson, 1991). Since the level of competition is high in the service competition, therefore a service firm needs to accurately estimate its costs. This new change in the industry has made costing a strategic issue; it has become so important that it effects long-term strategic decisions as well as day-to-day operating decisions. Costing has become so important because it helps a firm in: product or service organization, staffing and resource allocation. Accurate costing allows a company to plan resource consumption, price services properly and implement different strategies. But it is very difficult to initiate an Activity Based costing in a service firm, because in a service firm an employee is engaged in multiple activities involving different time-period. This makes it difficult to trace the resources consumed by a cost object (Cagwin and Bouwman, 2002). Even though the service industry is interested in implementing an activity based costing system, but since these models are made using the activity based costing models of a manufacturing firm as frame of reference, therefore the industry is facing multiple problems with regards to this technique’s implementation. The fundamental problem for this service industry is the absence of inventory, which receives an utmost importance while undergoing a valuation process. Other important cost variables are direct material and labor which are also absent in a service industry. This leads to a problem of estimating