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However, under the new cost system, special components costs increased as the number of special parts increased. The order processing cost per order

($13,800,000/65,625 orders=$210/order) became the fixed overhead cost for each order. Notice that if there is only one motor ordered, the cost per order under the new system is relatively higher than that under the old system (Table 3). The old cost system cannot provide true information about the cost and the company will face a loss. Changes in the Units of the Orders Under the old system, the cost per unit remained the same. The total cost per order= Unit MFG Cost * the number of motors in an order (Table 4).

Under the new system, as the units increased, the less order processing cost was allocated to each unit, while the number of special components played more important role. The more units of motors and the more special components in each motor, the higher the cost (Table 5). Old system totally biased the cost information, and the company would suffer great loss if its decision was based on the old system.

Table 4:Traditional Cost System Order Unit 1 10 20 100 334 3340 6680 33400 334 3340 6680 33400 334 3340 6680 33400 334 3340 6680 33400 334 3340 6680 33400 A B C D E

Table 5: New Cost System Order Unit 1 10 20 100 553.6 3646 7082 34570 593.2 4042 7874 38530 632.8 4438 8666 42490 712 5230 10250 50410 910 7210 14210 70210 A B C D E

Value of the New Cost System Different from the old cost system, the new system divided the total cost into three main types of costs, namely base motor cost, special component cost and the order processing cost. When an order is received, the total cost of the order can be easily calculated with the help of the number of motors ordered and the number of special component per motor. The company can recognize and pick up the

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