Easy Method for Assigning Activities to Products - an Application of Abc

EASY METHOD FOR ASSIGNING ACTIVITIES TO PRODUCTS - AN

APPLICATION OF ABC

Tommi Lahikainen

tommi.lahikainen@tut.fi

Jari Paranko

jari.paranko@tut.fi Industrial Management Tampere University of Technology P.O.BOX 541 FIN-33101 TAMPERE FINLAND fax. +358-(0)3-365 2027

http://www.im.tut.fi/cmc Abstract

Significant problems in activity-based cost models are the usability and the maintainability of the information. Cost information should be generated in no time and should be easily accessible. In companies that produce numerous products the assignment of activities to products requires great effort. However, the need for total product cost information is relevant for top management. The aim of this paper is to present one costing model for solving this problem. The solution should uphold the accuracy and relevance of cost information and yet make its generation fast and easy. The model concentrated on the activity assignment phase of activity-based costing. This phase was made more manageable by standardizing the different assignment situations and by building an easy-to-use application for assigning activities. The number of levels depends on the nature of the activity and the properties of the cost-object. The standardization was usually based on the time required to carry out the activity. Each level was related to others by applying weighted indexes. The activity assignment was accomplished by selecting the proper level of an activity for each cost-object. The standardization method has been piloted in an engineering workshop whose annual volume is 14 000 products comprising one thousand different products. A cost model consisting of 12 different activities was built for these products. The number of assignment situations, i.e. levels for each activity, was from 1 to 6. The actual assignment was done with a spreadsheet application made by the researchers. The company has been very pleased with the model and the way in which activity assignment is leveled...