Case Teaching Package
A case teaching package is available for this case. It includes strategies for case presentation, key concepts, solutions to the assignment questions in the case, and suggestions for the most effective ways to work this case into your course.

Length
This case is 6 pages in length and its case teaching package is 10 pages.

Abstract

This case is set in a carpentry job shop in Grenoble, France in 1956 in the midst of the post-WWII construction boom. The issues it addresses are timeless.

Mr. Bonlieu runs a small wholesale carpentry job shop that also offers design (drafting) services. His customers, furniture companies and building contractors, supply the wood. Bonlieu also owns a kiln so customers can supply green wood, if they choose. This gives him another potential competitive advantage. Since the products are custom-made for individual customers and each order can be unique, the company uses a "job order" costing system (full actual cost). All costs other than the direct product costs of labor and material are allocated to jobs on the basis of direct labor cost.

Worried that using a single overhead rate might be giving a distorted picture of job costs, Mr. Bonlieu sought the advice of a consultant. The consultant proposed creating eight cost centers, with eight separate overhead rates. Jobs would be charged for their share of the costs of each cost center based on their relative utilization of the activity in the cost center—an "ABC" system.

The old system and the proposed one give radically different signals about the profitability of the product lines. Complaints by competitors about low prices for some products tend to suggest that the proposed system gives better signals than the old one.

Mr. Bonlieu has to decide which system to believe and whether to implement the proposed system. The choice of system will have far reaching effects, influencing his perceptions about product profitability, pricing and product emphasis. Careful analysis of the case also surfaces critical strategic issues facing Mr. Bonlieu.

Linkages to Textbooks or Journal Articles/Fit Within a Course

We teach this case as the introductory "ABC" class in the required Managerial Accounting course at Tuck. We find that it can be covered in one class period (90 minutes) by following the format of the six assignment questions. We do not consider the strategic issues until we get to the dilemma of the underutilized kiln in question 5.

We believe the case is an excellent vehicle to teach the basics of "ABC" accounting systems design and to demonstrate that no accounting system is a panacea. One must always understand the business issues and the strategy when choosing a costing system and using it as a decision aid.

Study Questions

1. Complete Exhibit 3 of the case according to the consultant's proposal. Make sure you understand the logic and the calculations required. Appendix A is a completed version of the Exhibit to facilitate your preparation.
2. Use the costs per activity unit from the bottom of Exhibit 3 and the activity quantities from Exhibit 4 of the case to work out the costs and profits of Orders 28 and 32, according to the new accounting system.
3. Is the new system "better"? Should Mr. Bonlieu adopt the new accounting system?
4. Should Mr. Bonlieu change his prices because of the results obtained in Question 2?
5. Mr. Bonlieu has the opportunity to sell 12 more staircases at the same unit price s in Order 28. (He has sufficient capacity.) Should he accept the order?
6. What other advice do you have for Mr. Bonlieu? (Hint: What is Mr. Bonlieu's business strategy and what does that have to do with the case? How is he doing, financially?)

The downloadable file for this case is in Microsoft® Word 7.0 for Windows®.

If you do not have Microsoft Word, you can download the free Microsoft® Word Viewer 97 right here:   For Windows 3.x   For Windows 95

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