Insteel Wire Products: Abm at Andrews Case Study

Stephanie Vallejo, Pedro Sousa

Professor Anantharaman

Managerial Accounting

April 19, 2011

Insteel Wire Products: ABM at Andrews

Case studies are designed to encourage higher level thinking and introduce real life cases in which managerial accounting skills are put into use. When analyzing a case study, it shows that one understands the information provided by coming up with a possible explanation to why the things that happened in the case happened. The Harvard Business School case, Insteel Wire Products: ABM at Andrews, is a case in which a company, who once thought they were making good profits, actually weren’t in some of their products. Before the company had an ABM study, they did not have a costing system. They estimated their prices based on the material costs rather than allocating their costs. They were not able to tell which product was costing most to produce without a costing system, which meant they were getting misleading information on future profits in the company. However, once they initiated an ABC study, they were able to narrow down what was making a profit and what was not. The findings showed that 45% of their products and 45 % of the plant’s customers were unprofitable. And what they once thought was their most valuable products, the mesh products and galvanized wire, actually had a negative profit. While nails were their highest contributor in profits.

Insteel was in need of an ABC analysis, because they did not having a costing system to begin with. They weren’t allocating their costs in their products which lead to misleading information. They needed to allocate their different products by separating their costs into different cost pools. They were estimating the material costs of all their products by multiplying the weight of the product by the price of steel. This system wasn’t the best one because they weren’t basing it on the usage of material costs for each of their products.   The ABC system identifies each...