Applying Activity-Based Costing and Activity-Based Management Methods to Estimate Manufacturing Costs and Activities

Abstract

At present, the intense competition in many industries has made many companies aware of the costs and resources utilization within the organization. The key issue that all companies take into account is cost reduction while maintaining and building business process improvement in order to satisfy customers’ requirements.

The purpose of this research was to study the model of Activity-Based Costing (ABC) and Activity-Based Management (ABM) as an alternative option to calculate the product cost of the traditional costing system which provides more reasonable cost estimation and enhances resource and activity management. The data of three selected products were collected for the study from the existing production activities and support production activities to compute the product cost according to the ABC method. Then, appropriate improvement solutions were proposed to manage resources and activities. The results of the research showed that the proposed improvement action can help the company minimize the wasted resources that are expended on non-value added activity. This solution can save over 1 million Thai Baht per annum in the labor cost of the maintenance department. The findings indicate the important implications for Alexa, the focus company, to understand the cause and effect relationship between cost, activity, and product, which provides a perspective of the cost driver of the manufacturing costs and the solutions for saving costs in the organization.