Projects

How Activity-Based Costing affected Factory X to get increased savings

How Activity-Based Costing affected Factory X to get increased savings, competitive pricing, profit traceability with on-time strategic decisions.

About the Factory: 

One of the top manufactures in Egypt established in 1975, specialized in Hardwood and engineered wood kitchens and showrooms that produced in top quality.

Problem Statement:

 After analyzing their costing methodology, the costing structure was static, not showing each product profitability and has cost deviation (-30%) to (-40%).

Objective: 

Initiating costing mechanism considering overhead expenses and profit traceability for each product using Activity based costing.

Setting frequently updates for raw material cost with limited gap in time frame. Merging 2 previous points in easy-to-use tool for more dynamic updates. 

Activity-Based Costing (ABC Costing): 

Provides accurate costing methodology by measuring the cost of activities performed on each individual product. Supporting pricing decision making process and profit traceability. 

Implementation Methodology for ABC Costing:

§  Classify different products.

§  Allocating different models within same criteria (based on process flows).

Direct Cost calculation:

§  Raw material cost for each product (Wood + Edge + Accessories + painting + Wastage %).

§  Measuring Workstation (Machines & Labor) Capacities.

§  Setting the utilization factor for each workstation.

§  Calculating labor and process costs.

§  Calculating detailed specified process time for doors models

§  Overhead Cost calculation - considering Variable overhead:

§  Incurring each box with portion of deduced overhead.

§  Calculating Box Cost = Direct Cost + Overhead cost.