An Analysis On Activity-Based Costing In Product Cost Calculation Of Company M

By the influence of the financial crisis, raw material cost rising, labor cost rising, dollardepreciation as well as other factors, Electronic Manufacturing Service (EMS) enterprises inChina are gradually entering the era of meager profit. In such circumstances, how to calculatethe product cost accurately, especially the indirect cost, is very important for lots of EMSenterprises to make an accurate product price as well as to decrease their indirect cost, andfinally to improve their competitiveness.This paper takes Company M as an example, by means of investigating and studying itsindirect cost composition, as well as Activity-Based Costing, to analyze the relationshipbetween indirect costs and activities, as well as characteristics of activities. Based on furtheranalysis on cause and effect of indirect cost, this paper puts forward a new method to improveit. We can put an ‘Activity’ between the Resource and Product, and divide all indirect costsinto3types–‘easy to be traced directly,‘hard to be allocated’ and ‘easy to be allocated’ intoActivity Center Cost Pools. We can directly put it into Activity Center Cost Pool accordingly,or allocate it into Activity Center Cost Pools accordingly by adopting adequate and relativeResource Cost Drivers. It can improve the traceability of indirect cost from resource fee levelto activity center cost pool level. After that, study what activities generated these costs, andchoose different Activity Cost Drivers based on the characteristics of how activities consumeresources, and allocate Activity Center Cost Pools’s costs to different products finally. It canimprove the traceability of indirect cost from activity center cost pool level to product level.Activities will consume resources and generate costs, so, to divide activities by manufacturingprocess and factory running process, and to analyze the value-added characteristics ofactivities is very valuable to keep further studying on how to improve the efficiency ofValue-Added Activities (shorten the duration or reduce execution times), on how to reduce oreven remove non-Value-Added Activities, and finally, to decrease indirect cost step by step.By means of putting indirect cost into Activities Center Cost Pools directly or allocatethem reasonably, analyzing the relationship between indirect costs and activities, as well asthe characteristics of how activities consume resources, eliminating idle fee and choosingadequate, suitable, and reasonable Activity Cost Drivers, adopting diversiform criteria toallocation different indirect costs differently, we can improve the accuracy of indirect costcalculation results; by means of analyzing costs from activity point of view, and analyzing if itis Value-Added or non-Value-Added, reporting activity cost, especially the non-Value-Addedactivity cost, we can guide enterprises managers to optimize their activity chain step by step, to reduce waste and improve the efficiency of resource utilization, and finally decreaseindirect cost, as well as improve running efficiency and competitiveness of the enterprises.