Compare the unit costs of Common in the two costing systems of the two companies: บริษํทวนิลลา reports a unit cost of $43.76 for Common regardless of the costing system used, while บริษัทดูออล reports $43.76 with ABC and#50 with traditional costing. If บริษัทดูออล uses only a traditional costing system, it will report negative gross Company will report a positive gross profit of $6.19 ($49.95-$43.76) for each unit of Common, while บริษัทดูออล will identify Common as an unprofitable product and may make the strategic mistake of discontinuting Common.
It is important to understand why บริษัทดูออล decision to discontinue Common can be considered a strategic mistake. The reason is that บริษัทดูออล is as efficient a producer of Common as บริษัทวนิลลา is. (Recall that the costs and other information in the บริษัทวนิลลา illustration were constructed to make the two companies equally efficient) บริษัทวนิลลา knows the cost of a unit of Common is $43.76 regardless of what costing system บริษัทวนิลลา uses. บริษัทดูออล, because of its diverse product line, knows the cost of Common is $43.76 only if ABC is used. If ผู้จัดการของบริษัทดูออล rely on traditional costing and evaluate products by reported profit margins, they will conclude that Common is unprofitable and may discontinue it.