Business Process Improvment by Activity Based Costing

Abstract

The objective of this thesis is to apply Activity-Based Costing technique to analyze product unit cost structure of casting product in order to provide useful cost information for Activity-Based Management.The activity modelling - IDEFO is selected to develop activity model. By using this technique, the major activities and their sub-activities are defined. The study is based on CAM-I Cross methodology, which is divided into vertical cost assignment view (ABC) and horizontal process view (ABM). The first step of this thesis is to perform vertical cost assignment (ABC). This step is divided into collecting and organizing resource costs, assigning resource costs to activities, and assigning activity costs to final cost objects. The second step is to perform horizontal process view. This step will use useful cost information analyzed from the previous step to analyze activities and identify opportunities for improvement. Next, the ways for improvement are purposed and converted into action. Finally, the evaluation of the improvement is performed.By performing vertical cost assignment view, it is clear that ABC provides clearer and more accurate information of product unit cost. This allows management to have better decisions-making. Finally by performing horizontal process view, the result indicates that the activity cost rate of two significant activities, “melt metal” and “make AMF sand mould” activity, can reduce by 4.21% and 6.72% respectively. Moreover, in financial term, net profit can increase from 16.40% in Jun - Nov 05 to 23.08% in Dec 05.