A case study on the application of activity based costing on the magnetic inductor

Abstract

Speedy improvements in cost accounting since the 1960s have been noticed, particularly after the 1980s, in the percentage of total cost, overhead costs have increased. The problem of overhead allocation was faced by several companies and a disparity between the available methods of overhead allocation was developed. Because of skewed facts about the viability of their orders, goods and clients, traditional cost accounting (TCA) not anymore represents the actual economic reality. Consequently, in the moment of increasingly growing material liquidity and ambiguity, a new costing approach is needed to address the weakness of TCA. The goal of the study is to establish a new costing structure using activity based costing (ABC) method to the magnetic inductor for better precision. The case study is located at electronic industry in Pahang, Malaysia. ABC reports on the costs of manufacturing, selling or funding the goods used in the operations. The job was done correctly by the operator to accomplish the entire mission. The maximum time used by operators is at epoxy application activity which is 44.04% and the smallest is 0.64% at oven curing and boundary inspection activity. The highest amount of cost of capacity is epoxy application activity with MYR 1,665,600.00 and the quantity of material utilized is selected as the cost driver. Since the product required volume is up to 10%, production costs are expected to increase by MYR 4,160,614.85 while the unit product cost is forecast at MYR 0.79. Therefore, ABC is an cost management insightful process and cost control efficient approach.