DEVELOPMENT OF ACTIVITY-BASED COSTING IN FABRICATION COMPANY: A CASE STUDY

Abstract

The purpose of this study is to analyze and compare two costing method, namely, Traditional Costing and Activity-based Costing (ABC) costing in a selected manufacturing company. ABC is better, more accurate way of allocating overhead cost. Several steps such as identify the cost object, identify the direct costs associated with the cost object, identify overhead costs, select the cost allocation base for assigning overhead costs to the cost object and develop the overhead rate per unit. A case study was conducted to compare the benefits, advantages and disadvantages of both costing method. Step by step calculation for both traditional and ABC method was analyzed by choosing three selected products from the case study. The products selected were based from low, medium and high range of its product value. The overhead cost performance for three products were determined using ABC costing and the results were compared with traditional costing method. It was discovered that ABC method is better and more accurate in term of overhead costs.