Activity Based Costing at Steinway Sons Essay Example

Activity Based Costing at Steinway Sons Essay Literally for generations, Steinway Sons has been crafting fine pianos that are the overwhelming choice for highly skilled musicians worldwide (Steinway   Sons, 2006).   These pianos are created not by the speed of a computer, but by the talented hands of trades people who are experts at what they do.   Perhaps due to this tradition and reputation, Steinway Sons is often not viewed for what it is- a profit driven company that must control costs like any other.   In this paper, the control of cost within Steinway Son’s unique crafting process will be discussed, as well as the consequences of the alternative to controlling and monitoring costs.Activity Based Costing at Steinway SonsActivity Based Costing, which is to say the process of describing, identifying, and assigning costs to the tasks within a manufacturing process, is quite effective, given the right type of company and activity to which it is assigned, but it is not a universal concept that can be applied h aphazardly to all processes and organizations.   For Steinway Sons, the essential question is whether or not the firm is a good candidate for Activity Based Costing.To answer the Activity Based Costing question for Steinway Sons in a few words, the firm should not utilize the practice.   The reasons why they should not are a bit more complex.   First, the Steinway Piano, even in standard models, is unique every time one is made because of the fact that the craftspeople who make them perform many of the crafting tasks by experience and instinct, rather than by machine and blueprint.   Second, because of this unique process of manufacturing, it is very difficult to quantify the actual amount of time and material that each process should take, thereby making activity based costing inexact and largely ineffective.Alternatives to Activity Based Costing-and ConsequencesWhile Steinway Sons appears to be ill suited to Activity Based Costing, there are also some factors that need to be understood which could complicate the use of traditional cost allocation.   Once again, because of the fluctuations in processing time, materials used, and so forth in the creation of a Steinway Piano, a caveat is offered in terms of traditional cost allocation.   The allocation itself must be performed not under the assumption that all costs, even in a unique process, will remain static; true, there are fixed costs that are static regardless of other factors, but to assume that all costs remain the same would be to invite disaster from several viewpoints.When costing calculations are flawed, there is a distinct possibility that the resulting pricing will in turn be incorrect.   If pricing is allowed to be incorrect, one of two things are likely to happen: either the product will be priced too low to cover costs and generate a suitable return on investment, or the price will be hyper-inflated to the point where the company literally prices itself out of business, as cons umers choose a lower priced alternative-even in the case of a top quality item like the Steinway Piano.   This is a financial balancing act, to be sure, but it can be done.SummaryIn closing, perhaps the best takeaway from this research is that in finance and accounting, there are some areas that are not absolute.   For Steinway, and other firms, the challenge will remain to be the proper accounting techniques to guarantee long term viability of the business and a bright future.References(Steinway   Sons, 2006) (Steinway Sons 2006 Factory Tour)Steinway Sons. (2006). A Factory Tour. Retrieved October 25, 2006, from Steinway Sons Web Site: http://www.steinway.com/factory/tour.shtml