Question

Potter Corporation has gained considerable market share in recent years for its​ specialty, low-volume, complex line of​ products, but the gain has been offset by a loss in market share for its​ high-volume, simple line of products. This has resulted in a net decline in its overall profitability.

Advise management about specific changes that may be required in its cost accounting system and explain why the existing system may be inadequate.

Answer 1

The company should adopt Lean Accounting

Step-by-step explanation:

The main goal of lean accounting is to improve financial management practices within an organization. Lean accounting is an extension of the philosophy of lean manufacturing and production, which has the stated intention of minimizing waste while optimizing productivity. For example, if an accounting department is able to cut down on wasted time, employees can focus that saved time more productively on value-added tasks.

When using lean accounting, traditional costing methods are replaced by value-based pricing and lean-focused performance measurements.

Financial decision making is based on the impact on the company's total value stream profitability. Value streams are the profit centers of a company, which is any branch or division that directly adds to its bottom-line profitability.

Answer 2

Potter Corporation should turn to activity-based costing.

Step-by-step explanation:

Potter Corporation should change to activity-based costing. Since Its present system seems to be deforming product costs, resulting in prices of specialty products that are below average and prices of simple products that are too high. This may lead Potter to push products that produce low profit margins.