Site Loader
Rock Street, San Francisco

The manufacturing industry of the 21st
century is marked by increase in automation of production, growth in demand for
customized products and competitive product markets. The increase in automation
and product diversity entails a high investment in capacity resources which
subsequently leads to an increase in proportion of overhead costs in the total cost structure of
companies. In order to remain competitive in the market, managers require
refined costing systems to accurately allocate these costs to products (Horngren et al. 2015, Pg. 157).   In the last decades, ABC system introduced
by (Cooper Robin, Robert S. Kaplan
1988) has gained widespread
acceptance as a tool to allocate the overhead
costs associated with capacity resources to products and services. The usage of
multiple activity cost drivers as the basis for cost allocation enables a more
accurate product costing as compared to the traditional cost accounting system.

addition to a refined costing methodology, another advantage of the ABC system
is its ability to decouple the supply of and the demand for capacity. This
feature of the ABC system enables managers to quantify the costs of unused
capacity (Balakrishnan et al. 2012).
The efficient management of these unused capacity costs is of utmost importance
for companies investing in modern production systems (Santana et al. 2017).
The proponents of ABC argue that these costs of unused capacity should be
reported separately as period costs and not allocated to individual products (Kaplan, Robin Cooper 1992).
However, quantitative research efforts focusing on the effects of such
allocations have been minimal. The research work
performed in the scope of this thesis is aimed
at quantitatively evaluating these effects.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now

The objective of this thesis is thereby to perform
an analysis of the effects of unused capacity cost allocation to products. To do
so, multiple resource
sharing multi-product manufacturing environments have been simulated using
MATLAB for computation of product costs using ABC. The unused capacity costs are allocated to
products using two possible approaches and
the resulting effects of such allocations
in particular are analyzed under the scope of this work. Additionally, an
analysis on the unused activity costs and its influencing parameters has been performed. Overall,
a framework has been developed that could be used by managers to verify the
effects of redeployment of resources and processes towards unused cost reported in an activity.

Post Author: admin


I'm Dora!

Would you like to get a custom essay? How about receiving a customized one?

Check it out