Siemens Electric Motor Works

Financial Accounting

Case II: Siemens Electric Motor Works

Purpose of Case Study

        The purpose of this case is to illustrate the importance of appropriately adjusting cost systems when a business alters its business model. This case focused on Siemens Electric Motor Works (EMW), which was a division within EMW specializing in the production of motors. Competition within this industry was fierce and Siemens could no longer produce as cheaply as its competitors. EMW decided to change its business strategy and pivot to producing more specialized motors, in addition to its standard motor offerings. EMW’s current cost system needed to be redesigned so it could more accurately determine the cost of overhead associated with producing the different types of motor orders. The new cost system yielded more accurate information so EMW could appropriately allocate resources and determine product pricing.

1. What were the competitive conditions facing EMW in the late 1970s? What were the outcomes of managers at Siemens Electric Motor Works (EMW) deciding to change strategy? How did EMW’s new strategy change the ways products were manufactured? Was the strategy successful? What is EMW’s new product mix?

EMW faced a highly competitive environment in the late 1970’s. They were unable to compete with the cheap labor rates of the competitors in the Eastern Bloc. EMW was able to produce 200 different types of motors, but 80% of their production volume consisted of a standard motor design. Only 20% of the motors they made were customized. This led to a very quick turnover.