Huasheng Company, The Operating Cost Method

With the rapid development of science and technology, there comes a more and more intensive global competition with each passing day; and various personal individual needs cause mass production changed to different small scales in small quantities. The development also caused great decrease of direct labor cost in production but the increase of indirect labor cost. As a result of failure of traditional costing to provide reliable financial information, there come needs for a new costing and cost management system, so as to provide cost information for business cost control and decision-making in addition to routine financial report.The ABC (Activity-base-costing) approach is a computational system carried on business activities. It will make up the flaws and limitations of the traditional costing, and at the same time it can lay a good foundation for the business cost management. At present cost management including its computational system in China is comparatively backward. Much research is devoted to how to use ABC approach for a scientific decision, but few to its practical implementation for a better overall cost management. This paper made a longitudinal study of the whole process, in which ABC approach is practiced in Huasheng Corporation, summarized its experience, loss and gains, and put forward suggestions as countermeasures. Based on that, the paper finds that Huasheng's practice can help the business for more scientific decision-making, planning, and controlling, so as to strengthen its market competition, increase its profit, and strengthen the business as a whole. In addition, China's business now has shown the needs and provided conditions for the ABC approach; the approach is also applicable to China's business.The paper consists of three parts. Part One is made up of Chapter I and Chapter II, which present background, significance, and methodology of the research. Part Two is made up of Chapter III, Chapter IV, and Chapter V, which serve as the main body of the paper. The part first makes an analysis of the problems in surroundings of cost management and the management itself in Huasheng Corporation, then shows a want for a new costing system in the corporation, and finally proposes a solution to the problems—the ABC approach. For the approach, it explains the need for the ABC approach, design and implementation of the approach, including a cost comparison before and after ABC approach, a gross interest comparison, and tips for cost management. Part Three provides concluding remarks: conclusions, limitations of the present research, and suggestions for further study.