Report on Costing Methods: Morelli Electric Motor Corporation Analysis

This report analyzes the costing methods employed by Morelli Electric Motor Corporation, focusing on a comparison between traditional and activity-based costing systems. The analysis begins with an examination of the current traditional costing method, highlighting its limitations in accurately determining product costs, which leads to the overestimation of costs. The report then presents the rationale for adopting a new costing system, emphasizing the company's need to address competitive pricing pressures and improve cost absorption across different departments. The benefits of implementing an activity-based costing (ABC) system are then detailed, including the potential for reduced costs and improved pricing strategies. The report references key literature, including studies on ABC implementation and its impact on cost management and profitability. The report shows how ABC can lead to more accurate product costing, improved pricing, and increased profitability. The report concludes by summarizing the potential benefits of the ABC system for Morelli Electric Motor Corporation.

Traditional versus Activity Based
Costing
Morelli Electric Motor Corporation
Student Name:
Student Id:

Memo
Dear CEO,
In this presentation budgeted
price of the three models have
been computed.
New product cost for the three
models have also been
estimated.
 Budgeted price helps in
estimation of the profit and cost
of the busienss.

Analysis of the Current
traditional costing method
It is hard to determine the
accuracy of the product costs
reported by our product costing
system.
The failure to absorption of the
cost of the one products increase
the overall cost of the three
costing models (Oseifuah, 2018).

Reason for the adoption of
new costing system methodCompetitors are selling their
products at $ 106 which is below
the costing of the products sold by
Morelli Electric Motor.
Failure to absorb the cost in
different department which
increase the costing of its Deluxe
models as compared to other
rivals (Ahmed, & Kannaiah, 2016).

Benefits arise from the adoption
of Activity-based costing system
The costing of new standard model costs only
$96.82.
It eventually reduces the pricing of its current
offering with the reduction in the cost.
New costing system suggests the target
price of $481.53 for the deluxe model, rather
than $236.50.
It eventually increase the overall profit and
turnover of its products (Ahmed, & Kannaiah,
(2016).

References
Angelopoulos, M., & Pollalis, Y. (2017).
Activity Based Costing (ABC) as a tool for
Lean Transformation: The Case of the
Greek Power Public Corporation (PPC).
Oseifuah, E. K. (2018). Activity based
costing (ABC) in the public sector: benefits
and challenges. Management, 12, 4-2.
Ahmed, R., & Kannaiah, D. (2016). The
considerations for the implementation of
an Activity Based Costing System (ABC).