Kemps Case Essay

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1. Assess the implementation of the time-driven ABC system at Kemps. What do you like about it? What are you less happy with, and would have done differently?

One of the best aspects of the way the time-driven ABC system was put into place at Kemps was how efficiently and accurately management determined the main issues with the current cost system and responded with appropriate and relevant solutions. For example, one of the greatest problems the company was facing was that many of its operating costs were spread out equally over a customer base that was growing more diverse and demanding more personalized and varied service, effectively cutting or potentially eliminating entirely Kemps’ profit margins for a product. Therefore, …show more content…
The costs associated with transportation and disposal of the goods, along with the refunds that must be given to customers, provide good incentive for Kemps to rectify the issue. As the case states, perhaps the best course of action would be to put into practice a program that works to incentivize store managers who minimize their returns. This could be done through a sort of sliding scale, where as the amount of items returned increases, the refund given for each would be discounted based on a per item rate related to the linked costs of transport and disposal. This would force stores to keep more accurate inventories, resulting in great cost savings for Kemps.

4. How would you advise Kemps on the internal issues (described in the last paragraph of the case) that were being debated about use of the ABC system?

Although Kemps has created and executed a fairly successful costing system, it seems that the invaluable information received from it can still be widely open to interpretation, and the varying analyses (along with their accompanying recommendations) must all be considered carefully, so as to avoid unnecessary exposure to risk. The situation mentioned in the case is an excellent example of this; while the data seemed to suggest that closing a particular distribution route would reduce costs, the risk involved in loss of volume and customer relationships was simply too high to bear. Also, it is clear that not all changes
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