At Aerotech's Phoenix Plant, changes were needed to be implemented on the cost management system. Aerotech's corporations management was being misled by the traditional product-costing system, because the high-volume product lines were being over-costed and the low product line was being under-costed. The high-volume products essentially were subsidizing the low-volume line. The traditional product costing system failed to show that the low-volume products were driving more than their share of overhead costs. As a result of these misleading costs, the company's management was mispricing its products. Aerotech knew it was time for a change and contemplated what would fit the company best.
Aerotechs controller, Chuck Dickens and assistant controller, Anne Marley discussed the activity-based costing, after meeting with the production departments, it was decided that Aerotech would change from the traditional production process to activity-based costing. Through many months of planning, Aerotech implemented the following changes needed in order to move from the traditional system to the activity based system. An activity-based costing system consists of two stages in assigning costs to products. Stage one is where activity costs pools are created and in stage two, a cost driver is identified for each activity-cost pool, the costs in each pool are then assigned to each product line in proporation to the amount of the cost driver consumed by each product line. At Aerotech, stage one consisted of a unit level, batch level, product sustaining, and facility level. In stage two, cost drivers were identified for each activity cost pool and assigned to three product lines to the proportion of each cost driver consumed by each product line. Many specific changes were made during stage two, the machinery cost pool was created to show costs of machine maintenance, depreciation,