Activity Based Costing in Manufacturing Facilities and Electrical Power Distribution Systems Equipment Manufacturing

Abstract

Manufacturing processes are critical to the success of the nation’s economy. Due to availability of raw materials and labour in certain economies lead to large scale establishment of manufacturing facilities. Depending on global supply chain, many industries procure raw materials from a broader geography. One such example is petroleum industry the relies on cross-country pipelines for inflow of crude for refining and marketing purposes. The project managers must take care of the internal decision by proper use of the accounting figures available with the internal environment. Especially in a large manufacturing unit with low and high-volume products and services are delivered the accounting of the overhead costs incurred needs to be allocated so that an optimal pricing decision is made. Traditional costing allows undifferentiated allocation of the overheads to all types of the products irrespective of the volume. However, the activity-based costing has a greater significance when a literature review was performed to study the advantages of activity-based costing (ABC) and its success. Later on, a comparison of two hypothetical products “X” and “Y” distinguished based on the volume was performed against following the traditional methodology and activity-based methodology to understand how it would impact the pricing strategy been followed. The steps followed in the ABC were enumerated and presented in a manner to be able to understand by a person with non-business background. A general analysis has provided an insight in application of ABC for the management in taking the right decisions for the betterment of the company. In electrical power systems industry there are many equipment manufactured. The majority of them comprises of copper and aluminium conductors. The respective manufacturing facilities require attaining high energy efficiency, optimized processes, leverage of new technologies at the same time allocate the appropriate pricing strategy to promote both company profits and recover costs for research and innovations.
Keywords: manufacturing; project accounting; electrical equipment manufacturing.