Performance Control at Happy Chips, Inc



Performance Control at Happy Chips, Inc

Introduction

The purpose of this coursework is to conduct the analysis of the case study Performance Control at Happy Chips, Inc. The Happy Chips is the fifth largest potato chip manufacturer in the metropolitan Detroit market. The company's potato chips are supplied to the three different business segments such as grocery, drug and mass merchandise. The major revenue generation segment for the Happy Chip is the grocery segment which derives more than 50% of the annual revenue.

Discussion

I suggest Happy Chip Inc. to adopt the Activity Based Costing (ABC) system to have a close look over the revenues and expenses based on the different activities of the three business segments in which the company operates. Activity Based Costing (ABC) System serves as an alternate to the company's usual costing system. It provides manager with a helpful tool that aids in making strategic decisions and controls the fixed costs. ABC costing system is especially helpful for decision making that directly affects the capacity of production of a company. In traditional costing systems, the basic aim is to value the inventories and cost of goods sold in accordance with the GAPP (Generally Accepted Accounting Principles) whereas in ABC costing system there are two primary cost systems involved, which report accounting based data to both internal and external authorities. It is also used to determine the costs for product for special management reports. The method was founded in 1972 and is basically aimed at improving the traditional costing methods to provide better decision making alternatives to corporations (Griffin, 1997).

The methodology of Activity Based Costing is based on the fact that a company to produce products or services need to perform activities which consume resources, so activities are funded first and then the cost of activities are assigned to different cost objects (products, services, customer groups and regions, processes, etc.) consuming such activities, in such a way we achieve a much greater accuracy in determining the costs and the correlative profitability.

There are various benefits that the company can enjoy if the Happy Chip Inc. implements the Activity Based Costing in true spirit.

1) Enables research on the causes of the activities and in turn costs.

2) It has proved difficult to implement in any organization.

3) It is compatible with the Total Cost method, or Full Costing, since in fact the calculation is based on the total cost.

4) Allows adapting the historical costs as the cost standard.

5) Facilitates the elimination of activities that do not create value.

6) Allows the calculation "a priori" of activities company wish to incorporate, and the impact they produced to be completed.

7) Facilitates strategic decision making, as evidenced by the actual level of competitiveness of the company and the chances of success or failure against the competition.

I suggest to happy Chip Inc. not to eliminate any business segments. Therefore, there is a vital need that company must try to reduce the Stocking Costs and Delivery Costs of the merchandise segment to improve the ...