of what your suppliers are costing may produce Rick Anderson, president and owner of additional profitability increases.” Roberts Truck Products (RTP, Inc.), was both pleased and concerned. He was pleased Excerpt 2: because his company was the market leader in “Since processes are defined by activities, electronic instrument panels for heavy-duty activity management is needed. Activity based trucks and had a respectable share of the management identifies activities, their costs, market for hydraulic cylinders. He was their output, and their value to the organization. concerned because his company was facing an The outputs of an activity based management increasingly competitive business environment. system are critical inputs for the performance It had become more evident that his company management system. Moreover, since activity- must seek better ways of making strategic based management is all about the economics business decisions and collecting accurate, of an organization, it facilitates and supports the reliable information to facilitate this process. objective of waste reduction. It is fundamental to Moreover, Rick was convinced that greater increasing efficiency and maintaining and efficiency was needed—that operating improving your competitive position.” Convinced processes needed to be streamlined, waste that better cost information would help him to needed to be eliminated, and quality and reduce waste and increase profits, Rick delivery performance needed to be improved. immediately told Michele-Dawn that he would Rick expressed these concerns to Michele-Dawn like to implement an ABM system. Barker, the managing partner of the local office of a national consulting firm, who suggested that he consider implementing activity-based Questions to Think About management (ABM). When Rick mentioned that 1. Why is accurate cost information about RTP, Inc., was considering the implementation customers and suppliers important? of an activity-based costing (ABC) system, 2. What is wrong with the claim that all Michele immediately noted that ABC was a key customers are good customers? component of an ABM system. Michele- Dawn 3. Will accurate cost information guarantee that then offered to visit RTP, examine the a firm is competitive? operations, and prepare a formal proposal for 4. How can managing activities increase implementing an ABM system. efficiency? Within two months, Rick received the 5. How can we determine whether activities are proposal. He was intrigued by the following two of value to a firm? excerpts from the proposal: 6. What role, if any, do cost reports play in managing activities? Excerpt 1: “Following GAAP, Roberts Truck Products currently assigns the costs for selling, merchandising, and distribution to the period when these costs are incurred. No effort is made to trace these costs to individual customers or customer groups. We have done this tracing and have found that many of your customers are not profitable. We have found that a small percentage of your customers and a small percentage of your products are generating most of your profits. These results suggest that you need more accurate costing so that Roberts Truck Products can better manage products and customers. I will provide a more detailed report along with specific recommendations for changing your product and customer mixes so that your profits will increase. We are confident that our recommended changes will allow you to increase your reported net profit by at least 200