Global Electronic Inc

BACKGROUND

Global Electronics, Inc. (GEI) is headquartered in Sarasota, Florida. The company designs, manufactures, and markets power semiconductors and analog, digital, mixed-signal, and radiation-hardened integrated circuits for signal-processing and power-control applications. The products that Global Electronics produces are used in several functions such as antilock braking systems, air-bag systems, computer keyboards, modems, disk drives, and cell phones. Global Electronics has three fabrication facilities located in the U.S. that employs a total of 2,300 people and the company also employs 4,000 employees at an assembly and test facility located in Malaysia. Starting in 1999, GEI has had several serious issues affecting the company. GEI has had a loss in profitability with operating losses as much as $100 million on estimated sales of $650 million. Management believes that the profitability problems are stemming from the company standard costing system that was in place at the time. Management felt that the standard costing system was not accurate and could not identify which of the company products were profitable from the ones that were not. Compounding financial problems is the lack of understanding regarding product profitability, an incorrect product mix, and poor marketing and pricing decisions. The industry that GEI is in is characterized by increasing global competition, decreasing product life cycles, product proliferation, and exploding technological capability. This combined with internal problems led GEI to obtain a new president and a new controller with the hopes of strengthening the company position in the market and improving its financial performance. 

ANALYSIS

Switching to a new cost accounting system would be really costly and would affect not only the accounting department but the operation/ production departments as well. Therefore, a company would not think of employing a new cost system unless there are problems with the current...