Abstract
The objective of this research was to study the effect of applying direct or indirect cost allocation methods in Material Flow Cost Accounting (MFCA) analysis. Meatball production was selected as the case study. The direct method focused on the processes with large quantities of waste for improvement, without regard to the cost of the material wasted. On the other hand, the indirect method, which allocates cost based on the cost of materials, focused on the processes with the most costly waste in its improvement solutions. Thus, the different methods of cost allocation could target different process(es) for improvement. When materials used in a target product had the same cost and the quantity of waste was easily measured in the same unit, the direct and indirect cost allocation methods provided similar results. But when input materials differed in their costs and measurement units, the indirect cost allocation method was recommended.
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