Study On Application Of Activity-based Costing In Garment Manufacturing

Traditional cost accounting method, which allocates the cost of individualproduct or spare part according to the quantities of direct labor and/or time ofmachines used on it, now faces serious problems of accuracy and controleffectiveness. These problems will cause functional disturbance to theenterprises on cost control, performance evaluation, profitability measuring,managerial and strategic decision-making and, etc.Activity-based costing (ABC) is a costing model that identifies activitiesin an organization and assigns the cost of each activity resource to allproducts and services according to the actual consumption by each: it assignsmore indirect costs (overhead) into direct costs. ABC recognizes the causalrelationship of cost drivers with activities. In this way an organization canprecisely estimate the cost of its individual products and services. This thesis will study and compare the ABC and traditional costaccounting method and their implementations, through the theory analysis onABC definition, history and basic accounting principle. And will also raisesome key points in ABC implementation, as well as a sample company ZX,which typically reflect the ABC implementation in manufacturing industry.An enterprise should not rashly abandon the current costing accountingmethod; instead, establish ABC system without changing the current system.More than just a costing work, it is generally used as a tool for understandingproduct and customer cost and profitability. As such, ABC has predominantlybeen used to support strategic decisions like pricing, outsourcing andidentification and measurement of process improvement initiatives.