Competitive Price Strategy with Activity-Based Costing – Case Study of Bicycle Part Company

Abstract

Bicycle parts industry is a highly competitive industry, especially product components often adopt a low price strategy. The case company losing competitive advantage because of higher list price than other companies in Taiwan. The case company analyzes the manufacturing cost structure in order to promote the price competitive power.The case company re-exams the manufacturing process carefully. There are three processing stage for product manufacturing, from raw materials processed into parts level, assembled parts into components, and assembles components into bicycle finally. The customized product causes different manufacturing process that will cause multiple resource expired to drive variant cost structure. The complicate cost structure might affect price strategy to make. Therefore this paper explores cost calculation methodology for more accurate cost information than the traditional volume-based costing (VBC).The paper uses Activity-Based Costing (ABC) approach with two stages to allocate and calculate the manufacturing cost which is based on resources expired of process activities. By comparing the cost information between VBC and ABC approach, the research findings indicate that current VBC approach distorts cost structure because of single cost drive had been chosen, therefore, cross-subsidization among manufacturing cost structure among variant product. Secondly, ABC approach provides more accurate cost information that will help to set the competitive price strategy of the product that is great contribution to increase enterprise's profitability and competitive power. The paper look forwards to implement Activity-Based Costing approach which the product are variant and manufacturing process are complicate of the enterprise and industry.