The Study On Application Of Activity-based Management In Manufacturing Industry

Thanks to technological advances, the automation process of manufacturing industry speed up, and the manufacturing overhead in the proportion of total product cost is increasing. At the same time, the market structure is changing. With more and more drastic competition in market and more and more various customer requirements, the mode of multi-product and small-batch production is applied more and more widely by manufacturing enterprises, taking the place of mass production mode. In this case, the traditional cost management is not adapted to the new mode, and activity-based costing emerged in response to the needs of times.Activity-based costing has been used by a lot of companies in other countries. A great number of famous manufacturing companies, such as General Motors, Hewlett-Packard, Siemens, have realized the relative advantage of activity-based costing and join the team to have a try. In the year of 2012, Ministry of Finance in China drafted Enterprise Product Cost Accounting System (draft). The draft came out in order to reinforce the product cost accounting of enterprises in China, and enhance the accounting information quality at the same time. What’s more, the draft is the driving force of activity-based costing trial in our country, offering scholars the opportunity to do research on it.Started from the emergence and development of activity-based management, the paper then summarized the application of activity-based management in manufacturing industry. The application abroad is led by companies in the United States and Britain, showing a trend of "inverted U". A number of typical companies on trial have achieved impressive results. However, domestic application is slightly later than the United States and Britain. Hong Kong SAR, as the port open to foreign concept, took the lead in using activity-based costing, closely followed by the mainland. The domestic application can be divided into two phases. In the first phase, companies use the activity-based theory spontaneously without learning from the foreign ones. There are about six enterprises using activity-based management in the embryonic stage, accounting for about 3.17% of the total sample. It has to be emphasized that none of them clearly put forward the concept of activity-based costing, but the actual process of cost management method and activity-based management are similar. In the second phase, some companies tried to use activity-based management wholly and meet the success, such as XJ Electric, Sandexing and Xi’an Agricultural Machinery Company. However, scholars from Nanjing University conducted a questionnaire survey with 133 valid feedbacks. The survey showed that the overall utilization rate in China is not high.Concerning the application status of activity-based management in China, the paper try to give the answer why the overall utilization is not high here. The reasons are classified into endogenous angle and exogenous angle. From the endogenous angle, firstly, activity-based management is not proper for all enterprises because different companies have different need. Secondly, activity division and cost driver selection are subjective, so that the managers are suspicious of the accuracy. Thirdly, activity-based costing is relatively complex, in require of more time and more expense. From the exogenous angle, first of all, domestic companies have laggard producing style due to the condition of productive force. Backward cost accounting system and lack of professional staff are all reasons for low overall utilization.The paper also summarized the successful experience of the pilot enterprises. Successful experience can be described from four aspects. The first aspect is production. The companies try to use new management concept according to the actual situation, and create activity-based management with Chinese characteristics. The second aspect is technology. They develop IT system suitable for themselves, choosing from developing a new system and adding the module in the original system. The third aspect is operation. They prepare for the new management method in advance and follow the principle of importance. The fourth aspect is employee. Senior managers in these companies think highly of the program, train stuff timely, and associate workers’performance with activity-based costing.Concerning successful experiences at home and abroad, the paper analysis whether R Bearing Company need activity-based management, and then design scientific framework of activity-based costing system for it. R Bearing Company is mainly engaged in bearing manufacturing. The bearing manufacturing industry, highly automatic, is great influenced by the market. In addition, the company has various product so that the work flow is complex. Necessity analysis is from three perspectives:changes in market, changes in demand and management requirement. Feasibility analysis is from two perspectives:support from the information system and support from the managers.The design flow of activity-based management in R company consists of three parts. The first part is to train and mobilize the employees to be familiar with the concept. The second part is the collection of basic information. The last part is the design of accounting framework based on basic information. The accounting framework divided all business into 12 big activities, labeled production activity and non-production activity. Taking purchasing and production activity as example, product cost is calculated by defining activities, determining cost driver and activity driver. During the trial of activity-based costing, R company use the system to do some management work. With the help of activity-based management, R company strengthened basic management through material drawing management and working hours management. Then R company improved the product cost structure by analysis date collected by activity-based costing. What’s more, the company conduct decomposition of performance evaluation indicators, so that managers can judge the performance of workers more easily. The last use distinguishing non-value activities to improve work efficiency. To conclude, the framework not only obey the basic principle of activity-based management, but also add uniqueness. It’s the combination of theory and practice, and can greatly enrich the practice research in China.