Assignment task: Operations Management
Maragan Packaging ( Maragan ) manufactures two types of packaging containers for food distribution : Plastic and Other ( non - plastic ) . Maragan supplies food manufacturers with standard designed containers but also manufactures containers for specific client orders which depend on the type of food being carried . The Plastic containers market is well - established with all manufacturers producing similar sizes and types of products . The Other containers market is newer with greater possibilities for different designs for stacking and carrying purposes . The Other containers market has arisen as plastic is seen as a less attractive product due to difficulties in recycling it . Clients often choose Maragan as its design department has a strong reputation for blending the client's existing brand and marketing into the packaging which it designs for them . Maragan is a high volume producer , since the selling price of food containers must be kept low in order to satisfy the needs of the food manufacturers . The chief executive officer (CEO) wants to reinforce the strategy of cost leadership at Maragan and he wants to use activity - based management ( ABM ) to allocate costs more accurately and to identify non - value adding activities
The first department to be considered in the ABM project is the packaging design department as it has been believed for some time that the current method of cost allocation is giving unrealistic results for the two product types ( Plastic and Other ) . The chief financial officer ( CFO ) absorbs the cost of design into the product cost on a per unit basis . This has involved simply allocating the total departmental costs based on the total number of units produced . The CFO suspects that an activity - based approach will yield different results . After a lengthy process of interviewing the finance and department staff , a more detailed view of the work of the design department has been gathered along with its existing cost data ( see Appendix 1 ) . As an initial step , the CEO wants you to evaluate the impact of using activity - based costing ( ABC ) compared to the existing costing method for the design of both types of product . For simplicity in this exercise and to highlight the difference between the types of containers , the CEO has told you to assume that Maragan only produces one sort of product for each of Plastic and Other .
Once the evaluation of the impact of using ABC on the costs and activities of the design department is complete , the CEO wants you to make use of your evaluation to consider the implications for introducing ABM on this department . The CEO is especially interested in how this project may impact on the activities and quality of the department's work