An Analysis of Activity-Based Costing in a Manufacturing System

Authors: Derya Eren Akyol, Gonca Tuncel, G. Mirac Bayhan

Abstract:

Activity-Based Costing (ABC) represents an alternative paradigm to traditional cost accounting system and it often provides more accurate cost information for decision making such as product pricing, product mix, and make-orbuy decisions. ABC models the causal relationships between products and the resources used in their production and traces the cost of products according to the activities through the use of appropriate cost drivers. In this paper, the implementation of the ABC in a manufacturing system is analyzed and a comparison with the traditional cost based system in terms of the effects on the product costs are carried out to highlight the difference between two costing methodologies. By using this methodology, a valuable insight into the factors that cause the cost is provided, helping to better manage the activities of the company.

Keywords: Activity-based costing, manufacturing systems, product costs, traditional costing.

Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1331051

References:

[1] M. Özbayrak, M.Akgün, and A.K. Türker, "Activity-based cost estimation in a push/pull advanced manufacturing system," International Journal of Production Economics, vol. 87, pp. 49-65, 2004.
[2] R. Cooper, and R.S. Kaplan, "How cost accounting distorts product costs," Management Accounting, vol. 69, pp. 20-27, 1988.
[3] G. Kim, C.S. Park, and M. J. Kaiser, "Pricing investment and production activities for an advanced manufacturing system," Engineering Economist, vol. 42, no. 4, pp.303-324, 1997.
[4] A. Gunasekaran, and M.Sarhadi, "Implementation of activity-based costing in manufacturing," International Journal of Production Economics, vol.56-57, pp. 231-242, 1998.
[5] D. Ben-Arieh, and L. Qian, "Activity-based cost management for design and development stage," International Journal of Production Economics, vol.83, pp.169-183, 2003.
[6] R. J. Lewis, "Activity-based models for cost management systems," Quorum Books, Westport, CT, 1995.
[7] U. Köker, "Activity-based costing: Implementation in a sanitaryware company," M.Sc. Thesis, Department of Industrial Engineering, University of Dokuz Eyl├╝l, 2003.
[8] G. Cokins, "Activity-based cost management making it works," McGraw-Hill. Inc., 1997.