Comparative study of activity based costing and conventional costing for job order for manufacturing of a plastics injection mold

Abstract

The objectives of research were to (1) study the structure of moldmanufacturing cost using Activity-Based Costing(ABC) analysis method, comparing withconventional job order costing concept and (2) find out the most effective method ofcalculating the actual cost of a mold. The research used manufacturing informationfrom a plastic manufacturing company, which had its own mold manufacturingdepartment. Having many production and service departments, the manufacturing facedhigh overhead costs. Then, the factory needed an effective and reliable method toreflect the actual mold's cost, which was very important information for theestimation and pricing of the cost of a mold. The research collected and classified cost and manufacturing data applying twosample molds. Then the cost data of the two molds was calculated using the ABC versusthe conventional costing. The two methods were compared in terms of the costcomponents which were the structure of direct cost, overhead-variable cost of themold department, overhead-fixed cost of the mold department, and overhead-fixed costof support functions. The result indicated that the ABC method could be applied beneficially todetermine the cost of the mold, and also the information was clearer and morereasonable than the conventional costing method. However, the ABC was morecomplicated both in calculation and data acquisition. Therefore, the study proposedthat the ABC method could be applied when the cost accuracy of the molds wasrequired, whereas the conventional method with machine-hour based could be selectedwhen a quick estimation and the maximum cost tolerance of 20% was acceptable.