Projects

Activity Based Costing

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.