Applying Activity-Based Costing (ABC) to a Parawood Furniture Factory

Abstract

This article examines the implementation of activity-based costing (ABC) in a parawood furniture factory. It is a preliminary study describing the differences between the traditional and the ABC cost systems. Five products with the highest sale values were selected for this research. There were four main steps in accomplishing this research. First, the product, process, and current cost system were studied and analyzed. Second, an appropriate ABC model was developed and implemented at the factory. Third, a comparison between the current costing system and the ABC system was made. Finally, benefits and obstacles in the application of ABC system were discussed. The findings indicated that the costs under the traditional cost system were different from those computed using the ABC system. It allows the creation of a costing system that provides management with reliable cost information. It would be an important aid in making management decisions, particularly for improving pricing practices by making costing more accurate.