Apply Activity-Based Costing to Calculate Product Cost in Small and Medium Enterprises

Abstract

Traditional costing (TDC) has been used many decades and very popular with organizations because it is simple and inexpensive. In today’s business environment, overhead cost has a significant proportion in total cost, using TDC for assigning overhead cost lead to inaccuracy of product cost. Activity-Based Costing (ABC), until now, is considered as a modern costing method that overcomes the limitations of TDC and it has been popular in developed countries. However, it is until new method in developing countries, so it needs to be more diffused in this countries.This paper conducted the project on ABC method in Van Chinh enterprise in Vietnam. We defined ten activities centers as shown in table 4. Then, we applied ABC method to calculate cost of products and compared with the results calculated by TDC method. This paper concluded that ABC method is practical and appropriate for such a Van Chinh enterprise and provides more accurate information for cost management and management decision-making.