Elle Meyer

ACC548

Dr. Robinson

1 March 2023

Week 4 – ABC

For this week’s article, I read a piece written by Dave Meador, “ABC: Initiating Large-Scale

change at Chrysler.” Dave Meador started out by expressing the huge push back from personnel within

the company when ABC was first introduced to Chrysler in 1991 (Meador, 2017). The change in

accounting for costs of automobiles has challenged all previous assumptions about cost and profitability,

as well as their operating procedures (Meador, 2017). Meador suggests that at the time of conversion,

ABC had experienced a 70% failure rate in companies across the nation, and extensive processes and

communication had to be incurred to appropriately handle the conversion (Meador, 2017).

Early on, Dave and the rest of the finance team noticed some resistance from the company.

Chrysler brought in an accountant to try to determine the root of push back and develop a solution. The

conclusion reached suggested all members of the finance team had to be ‘all in’ for the new accounting

method, Activity-Based Costing, to work (Meador, 2017). Dave goes on further in the article to express

how managers began to discover that the old way of product costing was underselling profitable product

lines as well as overselling unprofitable ones (Meador, 2017). ABC (Activity-based costing) has been

implemented in Chrysler’s finance department to develop a more accurate representation of costs within

the company.

Further supporting this article, a blog written by Katherine Simmonds, “Is Accounting

Technology Bringing Back Activity-Based Costing” has demonstrated some ways Chrysler has benefited

from their change is costing systems (Simmonds, 2013). Simmonds starts of with explaining how ABC
allows companies to charge indirect costs, such as utilities or marketing, proportionally to the direct costs

incurred for the same product (Simmonds, 2013). For example, say a batch produced item required the

same resources and materials as a customized item. Traditional costing methods would not allow for both

products to be charged separately, whereas ABC would (Simmonds, 2013). ABC does a better job of

assessing the costs for products and services from a company (Simmonds, 2013). In a report published in

2009, Chrysler claimed they were able to save millions when they introduced ABC in the early 90’s.

Through this new costing system, Chrysler was able to see what products were costing more than they

were worth, allowing them to make better decisions on what parts should be outsourced for

manufacturing (Simmonds, 2013). Katherine Simmonds later mentions how many companies have

discarded ABC as it was too expensive to keep up with. As technology has advanced since the early 90’s,

ABC is showing a comeback as organizations believe it is more feasible (Simmonds, 2013).

The many advancements that have been made are not the only thing that will persuade

organizations to get on board with activity-based costing. Organizations must learn how to implement

these new systems as well as listen to the concerns developed within (Meador, 2017). Not only would

Chrysler have to convince the management team of the benefits of this new costing system, but they

would also have to prove it (Meador, 2017). ABC costing has been seen as a challenge for

implementation in many industries but having the expertise of a managerial accountant within the finance

team can help mitigate these issues. As companies are staring to transition into the ABC method,

accountants who specialize in this field can take advantage of the increase in demand to engage with

different organizations to help them save time and money. Managerial accountants can work closely with

these companies to help them understand the new costing system, while comparing figures to make better

business decisions to increase profitability in the future. By gaining a more accurate idea of costs,

companies, like Chrysler, can stop making poor decisions about products and begin to save their

customers and themselves some extra cash. Since 1991, Chrysler has seen the benefits from ABC as 10

to 20 times greater than the investment alone (Ness & Cucuzza, 2014).
 Overall, ABC may be slow to start, as many are reluctant to change. However, data has shown

that the savings from this new costing system far exceeds the cost of implementation. With the

advancements in technology, as well as managerial accountants being experts with the method, any

organization can increase profitability if they are all in.

 Works Cited

Meador, D. (2017, March 14). ABC: Initiating large-scale change at Chrysler. The Systems

Thinker. Retrieved February 26, 2023, from https://thesystemsthinker.com/abc-initiating-

large-scale-change-at-chrysler/

Ness, J., & Cucuzza, T. (2014, August 1). Tapping the full potential of ABC. Harvard Business

Review. Retrieved February 26, 2023, from https://hbr.org/1995/07/tapping-the-full-

potential-of-abc

Simmonds, K. (2013). Is accounting technology bringing back activity-based costing?

Proformative. Retrieved February 26, 2023, from

https://www.proformative.com/blogs/matthew-france/2013/12/13/accounting-technology-

bringing-back-activity-based-costing/