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• W2320231978 abstract "Activity-Based Costing (ABC) system is designed to address the shortcomings of traditional volume based costing system. Up to date, number of studies conducted in Small-Medium Sized Enterprises (SMEs) about ABC implementation is relatively small. Therefore, this study conducts a case study in one Medium sized manufacturing firm in Sichuan province with aims to 1) identify differences in terms of profit produced by company’s current costing system and ABC system; 2) to design ABC system for the selected company; as well as 3) to suggest how to implement ABC system successfully in the selected company. KEYWORD: Activity-Based Costing System; Small-Medium Sized Enterprise; Case study International Conference on Industrial Technology and Management Science (ITMS 2015) © 2015. The authors Published by Atlantis Press 46 Gauge Worsted Cashmere, as well as 16-Gauge Silk Cashmere were RMB476.33, RMB322.76, RMB295.14, RMB665.60, as well as 450.26 respectively. However, top management of ZiRongHuaYu Company could not confirm that whether the existing costing system could actually reflect the true production cost. In order to improve company’s performance, especially the accuracy of the existing costing system, Top management of ZiRongHuaYu attempted to adopt advanced management accounting practices, especially, the practices have been successfully implemented in Western countries. About half a year ago, manager of ZiRongHuaYu hired two consultants from University of Chengdu to suggest suitable management accounting practices to improve company’s current accounting techniques. After interviewing with finance managers, production managers, consultants realized that ZiRongHuaYu applied inappropriate method to allocate overhead costs to final products. The allocation basis of the company‘s current costing system is direct labour hours. Therefore, consulting team recommended Activity-Based Costing (ABC) system to top management of the company. Consulting team highlighted the two main reasons for ZiRongHuaYu to adopt ABC system: 1) High amount of overhead. In ZiRongHuaYu, the overhead cost makes up over 50% of the total cost, ABC system is suitable when the overhead costs accounts for high percentage of total cost. 2) Product diversity. More products manufactured by a firm, the higher percentage of overhead costs would be accounts for the total cost. In ZiRongHuaYu, the raw materials of company consist of over 20 different woollens, and the different raw materials are used to produced more than thousands of product. Therefore, the possibilities of overhead would be high. Consulting team also explained the benefits of ABC system and how ABC system could be used to improve the overall accuracy of costing information to top management of ZiRongHuaYu Company. Finally, top management of ZiRongHuaYu decided to employ ABC system to enhance its abilities to control operating cost. 3 ABC IMPLEMENTATION IN ZIRONGHUAYU COMPANY After top management was convinced to adopt costing system, consulting team aimed to design a framework for ZiRongHuaYu Company to implement ABC system. During this stage, interviews and observations were employed to collect research data. The five major products manufactured by ZiRongHuaYu are: 12-Gauge Cashmere, 14-Gauge Wool, 16-Gauge Lyocell, 16Gauge Worsted Cashmere, as well as 16-Gauge Silk Cashmere. According to Akyol (2004, p. 55), the process of ABC implementation stage could be concluded as follows: 1) Identifying the key activities of organizations, such as engineering, machining, inspection. 2) Determining the activity costs. 3) Selecting the appropriate cost drivers, such as direct labor, machine hours, and number of set up. 4) Collecting activity data. 5) Calculating product or service cost. 3.1 Identify key activities Based on the discussion with top management , consulting team outlined the core manufacturing activities of ZiRongHuaYu Company: 1) material procurement, 2) preparation process, 3) order entry, 4) garment manufacturing, 5) quality inspection, 6) ) mosaic and sewing of garment piece, collar, 7) afterfinishing for textile product, 8) inventory sorting, 9) packing and transporting, and 10) inventory storage. 3.2 Identifying of Activity cost After the identification of the core activities of Company ZiRongHuaYu, consulting team computed the resources consumed by each activity in monetary terms. Overhead costs are considered as activity cost. Major overheads incurs in a ZiRongHuaYu are indirect labour, indirect materials, factory depreciation and so on. Order entry is the first step of production process. The costs incurred in this stage were: salary paid to the staff in charge of this work, purchasing of relevant materials. Therefore, total amount of order entry expenses need to trace to final products are RMB229, 168. The second activity is preparation process including order programming. The overheads incurs in this stage were compensation paid to relevant staff, as well as expenses spent on designing during the process of preparation. According to the accounting record of ZiRongHuaYu, the total amount incurred on preparation process equals RMB345, 999.96, which must be allocated among different type of products. For the activity of and mosaic and sewing of garment piece and collar, it consumes labour resources. The expenses incurred on this activity comprised of salaries paid to staff in charge of this work, materials consumed. Due to it related to the production, thus, consulting team regarded it as indirect labour. Therefore, the amount of sewing expenses was RMB 1,841,960.04. Quality inspection expenses were the salaries paid to employees involved in that task during the process" @default.
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• W2320231978 date "2015-01-01" @default.
• W2320231978 modified "2023-10-06" @default.
• W2320231978 title "ABC Implementation in Chinese Manufacturing Firm: A Case Study in a Small and Medium Sized Firm" @default.
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• W2320231978 doi "https://doi.org/10.2991/itms-15.2015.12" @default.
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