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Activity-Based Costing in a Manufacturing Resource Planning

时间:2008-06-05 12:59来源:互联网 作者:佚名 点击:
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Historically, manufacturing and cost accounting became linked because of the need to determine the amount of profit to be gained by selling, producing, and shipping a product. Early decisions made within this relationship fostered a certain standard

Historically, manufacturing and cost accounting became linked because of the need to determine the amount of profit to be gained by selling, producing, and shipping a product. Early decisions made within this relationship fostered a certain standard upon which a method of determining the overhead cost of products based upon the direct labor content was built. This made sense, because, quite simply, direct labor was a large percentage of the cost that was expended in manufacturing such products as automobiles, trains, steel, clothing, firearms, and farm implements. The procedure used became known as the traditional costing method.
When material requirements planning (MRP) expanded into the more complete manufacturing resource planning (MRP II) system, the traditional costing method became a part of manufacturing control. Product costing involved adding to material and labor costs the overhead costs based on the amount of direct labor used in the manufacture of the product. The system worked, because manufacturing processes were highly labor intensive, overhead was a small percentage of the total cost, and firms had a low level of product diversity (Cooper, 1987).
The traditional costing system, established about 1925, worked well until the business environment changed. About 15 years ago, manufacturing firms began changes that were not conducive to the traditional costing method. Automated equipment that required a minimum of direct labor was installed. Continuing to use direct labor as the allocation base distorted the distribution of indirect costs. To a lesser degree, partial automation also resulted in distortion, with the worker acting as a material handler for a machine that performed all the required manufacturing operations (Hicks, 1992).
As a result of these changes, the traditional costing system, with its one-size-fits-all approach, is not adequate for todays business situations. Not only is the traditional costing method unable to supply the tools for measuring costs, it cannot provide managers with the information needed to run manufacturing operations profitably. A costing system that will identify the relation between expenditures and the activities that cause them is needed, and that information has never been available from the traditional costing system (Wiersema, 1995).

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