Product Cost Analysis with the application of Activity Based Costing A Case Study of Custom Machine Parts Manufacturing

Abstract

Product cost analysis is important to many entrepreneurs; especially when they faced that production cost exceed administration cost. For custom machine parts manufacturers, they often rely on executives experiences to estimate cost regardless of factors related to cost structure. This leads to inaccurate cost estimating. In this study, the sample companies implemented Activity Based Costing-ABC and their product costs estimated by conventional method were compared with ABC method. Product structure, production process, cost structure for machine parts production namely; cost of materials hidden cost (overhead) were studied. With ABC, there were processes as follows: 1) Activity analysis and identification. 2) Cost driver analysis. 3) Activity Cost Estimation. 4) Assignment of activity costs to products. Results of data collection were that there was a difference between conventional costing and activity-based costing at 37.17%. Based on the findings, entrepreneurs could know accurate co and thus allow them to set proper product prices as well as efficient administration within an organization.