activity based costing applied to automotive manufacturing

e-ISSN: 2582-5208 International Research Journal of Modernization in Engineering Technology and Science

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Volume:03/Issue:08/August-2021 Impact Factor- 5.354 www.irjmets.com

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ACTIVITY-BASED COSTING APPLIED TO AUTOMOTIVE MANUFACTURING

A CASE OF MESFIN INDUSTRIAL ENGINEERING

Gebrewold Teklay*1, Daniel Kitaw*2, Kassu Jilcha*3

*1,2,3School Of Mechanical And Industrial Engineering, Addis Ababa Institute Of Technology,

Addis Ababa University, Addis Ababa, Ethiopia.

ABSTRACT

Nowadays, the spectrum of manufacturing firms has been changed tremendously, competition has become

more intensive in the last decade. Accurate costing information is becoming paramount for any business

environment to sustain competitive advantages. To pursuit, this, Activity Based Costing (ABC) represents an

alternative paradigm to traditional costing system and it often provides more accurate cost information for

decision making such as product mixing, product pricing and makes or buy decisions. In this paper, the

application of Activity Based Costing to an automotive manufacturing company in Ethiopia and a comparison

with the traditional cost system is carried out to investigate the difference between the two costing

methodologies. To this effect, the research was conducted on the trailer assembly department of the case

company – Mesfin Industrial Engineering - for one fiscal year, and the result shows that ABC is better than the

traditional cost analysis with a cost reduction of about 3 percent. Thus, ABC is a more acceptable tool for

costing in the automotive assembly which can be also used in similar companies. The author highly

recommends the ABC approach to be utilized in manufacturing industries for estimating the cost of the

company related to activity and it also helps to manage the activities of the company in a better and more

efficient way.

Keywords: Activity-Based Costing, Traditional Costing System, Automotive Manufacturing, Mesfin Industrial

Engineering.

I. INTRODUCTION

The global business environment has changed rapidly in recent decades and it is still changing in an

unprecedented manner. Some of these changes include increased automation, the introduction of new

management practices like just in time, total quality management, supply chain management, group technology,

kaizen, and outsourcing of non-core activities. Activity-based costing, initially developed in the late 1980s by

Cooper and Kaplan to hinder the limitation of the traditional cost system(Gosselin, 2006). These changes have

increasingly influenced world-class companies to adopt new strategies, innovation, and more complex costing

systems such as ABC so that it can maintain competitive advantages (Chris Guilding,Colin Drury, 2005).

Previous studies reveal that firms in this environment that continue to use traditional overhead absorption

techniques were likely to make erroneous cost management decisions that are potentially disastrous.

Conversely, the use of ABC has been estimated to reduce costs by 3 to 5% and increased revenue from 5 to 15

%(Kaplan & Anderson, 2003). ABC is now on the verge of the most researched management accounting system

in developed countries. Activity-based costing has been suggested as a proliferated device for manufacturing

firms for better costing that have transparent implications for planning, controlling, and decision

making(Özcan, 2020). The practice of the ABC system has adopted in many developed countries of the world

such as Australia (Davood Askarany, 2012), Malaysia (Abdul Wahab, Mohamad, & Mohd Said, 2018), Turkey

(Özcan, 2020), Sri Lanka (Gooneratne & Wijerathne, 2019) and Bangladesh (Babu & Masum, 2019). The basic

idea behind the method (ABC) is to gain a competitive advantage and more accurate product costing to produce

products with precise cost allocation. This approach traces drivers to assign costs to activities and then

ultimately the allocating of cost to cost objectives. However, there has been a decline in its continued use as

well as the adoption by organizations on a global scale (Ozawa & De Zoysa, 2013); (Laing & Perrin, 2018). This

research attempts to complete the following basic objectives.

To develop an appropriate costing framework based on the ABC approach.

To see the application of the ABC system on the selected case company.

To compare and contrast with the traditional cost accounting system.





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The remainder of the paper is organized as follows. In section 2, a literature review on ABC and its evolution,

state of art related to activity based costing, benefits and it’s challenging of adopting ABC, and so on are

presented. The methodology used for the accomplishment of this paper is discussed in section 3. Section 4 is

mainly about the data presentation, analysis, and discussion. Finally in section 5 conclusion followed by

recommendation is forwarded.

II. METHODS

For the completion of this paper, the following research methods have been used: determination of the

problem, literature review on the traditional and modern ABC and, identification of activity, data collection, and

analysis of results and comparing it with the TCA of the case company and finally conclusion and future outlook

is provided. This paper address applied research in its nature, in which an extensive literature review is done

on activity-based costing and its evolution, the steps applied for ABC, and so on. Once the literature is

conducted a visit from the case company is done and some nature and related problems of the company have

been conducted to prioritize the gap and problems related to the case company. Data related to the ABC system

for the 12-month record have been collected from the stated case company and an analysis of this data is done

and comparisons concerning the TCA of the case company are drawn. To accomplish this paper a modified

methodology developed by (Baykasoǧlu & Kaplanoǧlu, 2008) is also adopted (see Figure 2).

2.1 State of arts

Previous studies have shown that activity-based costing is useful in two ways: (1) organizations with large and

growing expenses in indirect and support costs and (2) organizations with a large variety in products,

customers, and processes which is the unique characteristics of manufacturing functions as overhead intensive

entities. Therefore is crucial to use ABC as a useful tool for evaluating overhead costs and direct costs related to

their material transportation costs along the supply chain. Despite the benefits of (ABC) over traditional costing

systems, a review of recent literature revealed that most ABC system practices are being done in developed

countries and very little has been done in developing countries, especially in Ethiopia. This raises many

unanswered questions relating to how to go about the implementation of ABC, the possible use of ABC, and how

ABC is important over the traditional cost accounting (TCA) system. This study is therefore aims to address

such questions by presenting the theoretical framework and details of ABC analysis by taking fiscal year data

(12-month data) from the selected case study and comparing ABC with the TCA system and finally the paper

concludes by recommending the adoption of activity-based costing to the case company in particular. The idea

of activity-based costing has come a long way since the 1980s with a plentitude of researchers contributing to

the conceptual evolution and practical application of ABC in various sectors of the economy. For the long-term

existence of industries, it is mandatory to have active control and improvement of every activity of the firm.

Nowadays, owing to the state of the art of sustainable manufacturing technology for an industrial business may

not guarantee long-lasting profitability both in the local and global market. Traditional costing involves

collecting indirect costs from departments and then allocates them to products or services(Tsai & Kuo, 2004).

Due to this reason, methodology, therefore, suffers from several defects which result in distorted costs for

decision making, which leads to inaccurate determination of costs associated with product or services.

To comply with this drawback, a modern approach called ABC has emerged as a solution to the TCA system.

While the traditional costing system assumes that product cause costs, activity-based costing systems have

activities as the fundamental cost objects.

Based on the survey conducted from Mesfin industrial engineering, the author has summarized the following

two critical problems related to the company. The first one is the lack of systematic compilation of the history

of cost accounting and its development. And second is a lack of awareness of the concept of ABC and its

application. This can be achieved by the proper methodology of the ABC system regarding the activities

performed in the production process to enable factories to determine the costs of their products along with

why they cost for what they do. With this knowledge, the factories can acquire information on profitable

product mix, activities of prime improvement, better utilization of their capital funds, and better business

decision.





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2.2 Activity-Based Costing Vs. Traditional Cost Accounting

Traditional cost accounting developed to comply with external financial reporting can be traced back to the

emergence of large enterprises like textile industries, shoe factories, steel, and retail companies. According to

(Johnson & Kaplan, 1987)they argue that by 1925, virtually all of the TCA practices prevalent today (e.g. cost

accounts for labor, material and overhead; budget for cash, income, and capital; flexible budgets, sales,

forecasts, and standard cost) had been developed. TCA is based on the assumption of cost objects (products or

services) consume resources (e.g. raw materials, labor, supplies, etc.). Fundamentally TCA system tries to

assign cost directly to products rather than to activities first and then from the activities to production units.

TCA is often designed as either job costing or process costing system which divides costs into indirect costs and

direct costs. The former include selling general and administrative costs which are charged against income in

the period incurred. Whereas the latter one includes costs of direct materials, labor, and factory overhead costs.

Traditional cost accounting system allocates the indirect costs to products or services arbitrary using one cost

driver (direct labor or machine hours). Cost calculation of products and/or services in traditional costing is

based on the determination of direct and indirect costs and then summing them to find the individual cost of

each element.

Scholars and researchers defined activity-based costing as a system mainly based to solve the problems of the

conventional costing system; that the traditional cost accounting system is often unable to picture out correctly

the true costs of products or services. In this approach, resources are assigned to activities, and activities to

cost objects based on consumption estimate. A resource is an economic element that is used or applied in the

performance of activities whereas activities are a collection of actions performed within an organization uses

for activity-based costing. And cost objects are products or services for which a separate cost measurement is

required. Cost drivers are any factor that causes a change in the cost of an activity. An activity may have

multiple cost drivers associated with it. Performance measures (financial or non-financial) are indicators of the

work performed and the results achieved in an activity, process, or organizational unit. ABC gives a more

comprehensive view of the relationship between resources, activities, and products and uses multiple cost

drivers to assign indirect (overhead) costs to these activities. It is well organized in the literature that one of

the most difficult tasks in the development of activity-based costing (ABC) system is that, the identification and

design of the activities that should be included in the process(Tatsiopoulos & Panayiotou, 2000). According to

(Stapleton, Pati, Beach, & Julmanichoti, 2004) the initial step in the application of activity-based costing is the

determination of activities and processes. The second step of the ABC application is the determination of

resources used in the process.

2.3 Procedures of Activity Based Costing

ABC has proved itself beneficial, yet there remains to construct a system that will help in finding accurate costs.

To this effect, the following execution is required. To identify firm resources is to identify all direct and indirect

costs of operation. Later on, these costs will be attached to specific activities. This knocks out that mapping firm

activity should be performed at the same time. The second step after managers has information of resources

and activity is to identify cost drivers, which is one of the crucial challenges of activity-based costing

implementation. The third step of activity-based costing analysis is to trace costs from activity to cost objects

(Goldsby & Closs, 2000). For the implementation of activity-based costing, the following major steps have to be

executed (Collin Drury, 2000).

Step 1. Identifying the major activities that take place in an organization

Step 2. Determining the activity costs

Step 3. Determining the cost drivers such as machining hours, number of setups, engineering hours, etc.

Step 4. Assigning the activities cost to cost objects

Step 5.Computing the product cost

ABC is an accounting method used to trace costs to a product or service or process of an organization. Rather

than assigning costs directly to products, they are assigned to the activities performed by the company. Then

the costs of the products are calculated by determining how much each product uses each activity. This method

needs knowledge of the process to determine the distribution of costs. The concept of activity-based costing





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traces resources to activities than to cost objects for a more accurate cost distribution. A cost object is typically

a product or process, while the activities are discrete actions that must be performed to create the cost objects.

Resources are objects used by the activities which result in cost such as equipment, labor; materials, etc. The

basic idea of ABC is that cost objects consume activities that consume resources and the consumption of these

resources results in costs (see Figure 2). This method requires additional knowledge of the process but ends up

producing more meaningful results.

Drivers are used to tracing resources to activities and activities to cost objects. Resources drivers trace the

resources to the activities and activity drivers trace the activity to the cost objects. These drivers represent the

causes of consumption and these allow for accurate distribution along the ABC chain. These drivers must be

correlated to the actual causes of consumption by the objects. This allows for accurate tracking and a better

understanding of the costs of the system.

Figure 1: Cost assignment and Relationship Chain in the ABC model Adopted from(Jurek et al., 2012)

And (Tsai & Kuo, 2004).

2.4 Benefits of Activity Based Costing

It is claimed that activity-based costing provides many significant benefits over its counterpart of the

traditional cost accounting, such as enhanced product accuracy, more comprehensive cost information for

performance measurement, more pertinent data information for management decision making, increased

potential for sensitivity analysis, and a model for value-adding organizational transactions and activities

(Bhimani & Pigott, 1992). Activity-based costing has emerged as a modern cost accounting and management

innovation that can be used to link an organization’s operational performance and actual financial

performance(Cagwin & Bouwman, 2002). Canby (1995) cited in (Oseifuah, 2014), argues that activity-based

costing systems can reveal how an organization’s activity aligns with its strategic goals and objectives. (Cagwin

& Bouwman, 2002) analyzed the impact of activity-based costing on 205 large companies in the USA and the

result indicates a sound and positive relationship between activity-based costing and financial performance as

measured by 3 and 5 percent return on investment. (Athanasios Vazakidis, 2010)investigated the relevance of

activity-based costing in the Greek public sector. Their findings show that when combined with new

technologies and new methods of management, activity-based costing can resolve all the shortages of the public

sector and help to produce services at a minimal cost. Several studies such as (Sartorius, Eitzen, & Kamala,

2007) pointed that the key benefits of activity-based costing are cost control and cost reduction to improve

profitability. Activity-based costing alongside other technologies and an effective management approach has a

significant impact on cost control and cost reduction of manufacturing functions so as to improve efficiency and

profitability.





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2.5 Challenges of Activity Based Costing

In recent times, due to an improvement in their business environment, a lot of changes have emerged. These

changes related to the increasing of global competition and reduction in product life cycles come from

technological approaches used in the Industry. Using a new advanced industrial technology has increased

automation and changed the cost structure because using machines instead of direct labor will lead to an

increase of the indirect cost. This problem will increase in the future, mainly because some companies around

the world start using the nanotechnology method in their production, which will lead to an increase of indirect

cost which needs more accurate allocation to the unit of product to achieve competitive advantage. Many

researchers around the world (Hasan, 2017) said that the management accounting implementation rate is low

and no many companies around the world are implementing the new management accounting concepts such as

ABC or Balanced Scorecard(BSC). Despite its high profile, the published evidence on ABC implementation

indicates that there is a fairly low rate of implementation(Innes, Mitchell, & Sinclair, 2000) and (Sartorius et al.,

2007). Various possible reasons have been suggested for this relatively low adoption rate to mention few:

technical variables such as identifying and aggregating activities, assigning resources to activities, selecting cost

drivers (Sartorius et al., 2007), behavioral and organizational variables such as internal resistance, lack of top

management support, human resources availability, lack of knowledge and an expressed satisfaction with

current system and systems issue such as data collection, in-adequate computer software, amount of work and

time needed(Innes et al., 2000).

2.6 Competitiveness of Automotive Manufacturing System

Nowadays increasing worldwide competition has forced manufacturing organizations to seek to produce high-

quality products more quickly with the most competitive cost. To reach these goals, manufacturing

organizations have been required to become more flexible, integrated, and highly automated. However, since

initial and operating costs high, advanced manufacturing systems are concerned with achieving high system

utilization. Despite the advantage of having high levels of automation, flexibility, and high-quality products,

without a realistic and more accurate costing mechanism these systems cannot be expected to remain

competitive (Özbayrak, Akgün, & Türker, 2004).

Taking into account the growing concern of the manufacturing industry concerning competition in the global

market, several initiatives are now underway to improve the competitive position of firms, one of which is the

implementation of ABC in the manufacturing sector.





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ABC

Design

Yes

Process

Performance

Measurement

No

Determining company

process, activity and resources

Collecting activity and

resources data

Resources drivers’

determination and selection

Activity driver’s

determination and selection

Cost determination

Problem Definition

Stop

Is process

improvement

necessary?

Cost report

Rearrange, modify

process, activities and/or

drivers for process

improvement

Process mapping and

modeling

Scientific Literature Review and

Prioritizing Gaps

Figure 2: Activity-Based Application Framework (Baykasoǧlu & Kaplanoǧlu, 2008)

III. RESULTS AND DISCUSSIONS

3.1 Overview of the Case Company

The manufacturing process of the company has four major departments: (1) Material Preparation (2) Body

Shop (3) Paint shop (4) General Assembly.





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The material preparation shows the process starting from material entrance or arrival to the material

preparation shop to producing a semi-finished product. The body shop transforms the raw materials into the

structure of the vehicle. Then, the paint shop (seven major processes) applies a protective and visual coating to

the product. Finally, the general assembly assembles all sub-components into the vehicle (mainly the trailer),

which in general produces about 200 trailers per year (Actual production). Of these processes, the general

assembly consumes a majority of the energy, materials, and time in general resources. Due to the large share of

resource usage, the general assembly (Trailer) was chosen as the main work of this study. Generally, there is

twenty-four distinct process, characterized with complex process and requires many sub processes (major and

sub-activity) performed within the assembly shop of trailer manufacturing which could be seen as cost objects

in the ABC model(see for example Appendix 1).

3.2 Calculation of Cost using Activity Based Costing

To perform the ABC calculation an approach followed by (Kumar & Mahto, 2013) is adopted. A tabular ABC

model is presented based on the input data from the specified case study shown below in Table 1.

Table 1: Tabular ABC Model

Resources Activity First stage Cost Driver

Raw material Purchasing Part weight

Direct labor Processing Processing time

Machine Cutting, welding, etc. Parts processed

Energy Utility Kilograms processed

Vehicles and Indirect labor Material handling Kilograms handled

Control and Inspection Quality control Inspection time and inspected

parts

Setup Tooling and fixtures Setups

Other Stop of line Stop hours

The company has recorded the following expenses in 2018 on its general ledger statement and is shown in

Table 2.

Table 2: Expenses on General Ledger statement (amount is in Ethiopian Birr)

Direct labor cost 3347510

Direct material cost 90366039.2

All other indirect expenses Salaries and wages 1,503,825.00

Utilities 411,924.00

Income tax 8,132,943.42

Warehouse used 1,084,392.46

Maintenance 433,756.982

Depreciation 103,848.00

Property insurance 1,544,715.00

Total 13,215,404.8

To calculate the unit activity cost (UAC), the number of workers involved in the trailer assembly required for

each activity is assigned as obtained from the report of the case study shown in Figure 3.





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Figure 3: Activity Determination

Table 3: Calculation of Unit Activity Cost(Kumar & Mahto, 2013)

No. Activity Activity cost(a) Activity Driver Quantity(b) Activity

Rate(a/b)

1 Processing orders 1718002.624 No. of orders 40 42950.07

2 Scheduling order 1718002.624 No. of work order 40 42950.07

3 Set up machines 7469346.793 No. of set ups 156 47880.43

4 Inspection lots 861644.393 No. of lots 280 3077.301

5 Shipping part 1436514.502 No. of shipments 20 71825.73

Note: unit activity cost (UAC) calculation = total cost from general ledger x % of activity e.g., processing orders =

13215404.8x 0.13 = 1718002.62

Table 4: Indirect cost for the ABC Model(Kumar & Mahto, 2013)

Activity Processing

Orders

Scheduling

Orders

Setup

machine

Inspection lets Shipping

parts

Total Cost

Activity

Rate

42950.07 42950.07 47880.43 3077.301 71825.73

Vol. 18 18 132 282 18

Total

cost

773101.3 773101.3 6320217 867798.9 1292863 10,027,081.3

Unit

Cost

4295.007 4295.007 37346.7354 6093.05598 7182.573 59,212.37838

Table 5: Total cost of the product after ABC Model Implementation(Kumar & Mahto, 2013)

No. Expenses Product (Trailer)

1 Direct labor cost 3,347,510.00

2 Direct material cost 90,366,039.20

3 Overhead distribution (activity cost basis) 10,027,081.3

4 Total cost(birr) 103,740,631

0

10

20

30

40

50

60

Processing orders Scheduling order Set up machines Inspection lots Shipping part Total

1 2 3 4 5

No. of people % of activity





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3.3 Cost Calculation using Traditional Cost Accounting

The total cost of the product is determined by a direct summation of the indirect cost and direct cost to produce

the final product. Accordingly, the indirect cost is given in Table 2 and is equal to birr 13,215,404.80. The direct

cost is the sum of both direct material cost and labor cost and is given by birr 93,713,549.20. Therefore the total

cost based on the traditional cost accounting is the sum of direct cost and indirect cost and given by birr

106,928,954.

3.4 Comparison of ABC with TCA

To investigate the saving of cost by applying the ABC system concerning the traditional cost accounting, a

simple arithmetic formula, shown below is used. The total cost obtained by the application of TCA is equal to

birr 106, 928,954. Whereas the cost obtained by the use of ABC is equal to birr 103,740,631. Then using the

formula:-

The result indicates that the application of the ABC method can have greater transparency of cost which leads

to implications for planning, controlling, and decision making. Traditional cost accounting uses bases like direct

labor and machine hours to allocate to products expenses of indirect and support activities, including

engineering changes, setups, and part maintenance. In contrast, activity-based costing segregates the expense

of indirect and support resources by activities. It then assigns those expenses based on activity drivers and the

comparative difference between these methodologies is shown below in Figure 4.

Figure 4: Comparison between ABC and TCA approach

Figure legends:

Figure1: Cost assignment and Relationship Chain in the ABC model

Figure 2: Activity-Based Application Framework

Figure 3: Activity Determination

Figure 4: Comparison between ABC and TCA approach

Appendix 1

Table 6: Major activity and sub process of Trailer assembly department (Sources: Company document review)

Main Activity(Level 1) Sub Activity(Level 2)

A1- Longitudinal Beam

A1.1- Check Straightness of Upper plate

A1.2- Loading Upper Plate on the Jig

A1.3- Check Height of Vertical Plate, Loading of the Jig and Intermittent

106928954

103740631

102000000

103000000

104000000

105000000

106000000

107000000

108000000

TCA approach ABC approach

Cost





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Tracking taking with Upper Plate

A1.4- Loading Lower Plate and Tack with Vertical Plate at 90 degree

A1.5- Unload Tacked Long Beam and Transfer to the Final Welding Station

A2- Longitudinal Beam Final

Welding

A2.1- Check Straightness of Tacked Long Beam

A2.2-Loading Tacked Long Beam on the Jig

A2.3- Tightening on the jig equally both side

A2.4- Weld Long Beam Parallel both side

A2.5. Unloading the welded Long beam and transfer to the Frame tacking

station

A3- Frame Tacking

A3.1- Check the height of the long beam 435mm

A3.2- Loading of welded two long beams on the jig

A3.3- Make center distance 920 mm b/n two long beams and fix temporarily

by tack welding

A3.4- Assemble and tack internal cross member and level for turning table,

tack vertical reinforcement

A3.5- Assemble side beam and tack welding

A3.6- Assembling external cross member and tack with side beam and long

beam

A3.7- Tack winch and winch reinforcement, side beam reinforcement, hooks

A3.8- Assemble front beam and weld two corners

A3.9- Tacking Corner reinforcement and bottom reinforcement plate

A3.10- Grooving, and welding of I beam for turning table

A3.11- Check and transfer to the final welding station

A3.12- Bottom side final welding

A4 - Plate Form (Group 01)

A4.1- Rear Beam Tacking and Welding

A4.2- Longitudinal omega tacking and welding

A4.3- Twist Lock tacking and welding

A4.4- Tacking and welding rear bumper

A4.5- Turning table guide

A4.6- Topside final welding

A5- Plate Form (Group 02)

A5.1- Tool Box Tacking and welding

A5.2- Check plate tacking and welding

A5.3- Board Fitting

A6- Plate Form (Group 03)

A6.1-Reserve Wheel and fuel tanker carrier tacking and welding

A6.2- Valve support, rear light support, air cylinder support tacking and

welding

A6.3- Rear Fender, the mechanical hand brake and roller tacking and welding

A7- Board Accessory

Assembling and Final

Welding

A7.1- All boards welding

A7.2- All boards Hinges and board protectors tacking and welding

A7.3- Stand cover plate, latch and cutch tacking, and welding

A7.4- Surface Finishing

A8.1- Loading drawbar beam and cross member on the jig

A8.2- Fitting and welding of locking pin on the towing eye bushing





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A8- Draw Bar Fabrication

A8.3- Tack and weld frame, cross member, steel bushing, towing eye bushing,

and cover plate

A8.4- Tack weld triangular reinforcement, plate at the front, plate at rear,

and spring holder

A8.5- Polish and ready for fitters

A8.6- Transfer to axle station

A9- Trolley Fabrication

A9.1- Loading I Beam frame on the jig

A9.2- Check levelness of upper side, tack, and weld

A9.3- Tack and welding reinforcement

A9.4- Polish, mark centering, and drilling for turning table

A9.5- Weld plate for Chain

A9.6- Check and surface finish


A10 - Stand Fabrication

A10.1- Check each accessory dimension as per the drawing

A10.2- Loading Stand on Jig

A10.3- Stand Tacking and welding

A11 -Board Fabrication

A11.1- Check each accessory dimension as per Drawing

A11.2- Loading Board sheet on Jig

A11.3- Assembling and tacking board sheet with upper and lower seal and

side plate

A12- Wheel Carrier Bead


A12.2- Wheel Carrier bead tacking and welding

A12.3- Fuel Carrier plate tacking

A13 - Suspension Cover Plate


A13.2- Welding suspension cover plate



A14- Axle Assembly and

Mounting

A14.1- Loading axle and leaf spring on the jig

A14.2- Tightening axle with leaf spring by U bolt using a torque wrench

A14.3- Check all center dimension and diagonals as per the drawing

A14.4- Loading welded suspension on leaf spring

A14.5- Align straightness and levelness of suspension by using steel rule

A14.6- Loading welded frame over prepared axle at a given dimension

A14.7- Check dimension from wave plate of the long beam to the end of the

axle(Both right and left side)

A14.8- Tack frame, gusset plate, vertical reinforcement plate, and hollow pipe

with suspension and frame

A14.9- Weld overhead suspension with frame

A14.10- Welding of all tacked frame and reinforcements

A14.11- Grinding and polishing before transforming to next station

A15- Wheel Clamp and Air

Cylinder Support


A15.2- Wheel clamp tacking and welding





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A15.3- Air cylinder support tacking and welding

A16 -Pocket Welding

A16.1- Check pocket straightness and properly fitted

A16.2- Weld vertical pocket with side frame

A16.3- Check welding appearance

A17- Reserve Fuel Tank


A17.2- Assemble side and bottom sheet with the internal panel as per

drawing

A17.3- Weld side and bottom sheet with internal panel

A17.4- Assemble side and top sheet with the internal panel as per drawing

A17.5- Weld side and top sheet with internal panel

A17.6- Assemble front and rear sheet as per drawing

A17.7- Assemble guide angle iron, drainage pipe, inlet pipe, and outlet pipe as

per drawing

A17.8- Weld All External Part

A18- Frame I- Beam

Fabricate


A18.2- Check straightness of upper plate and load on the jig

A18.3- Check straightness of vertical plate, loading of the jig, and intermittent

tacking with upper plate

A18.4- Loading lower plate and tack with vertical plate ate 90 degree

A18.5- Weld I beam staggered both sides

A18.6- Unload and transfer to next station

A19- Board Hinge Fabricate


A19.2- Tack and weld male and female Hinge

A20 -Mechanical Hand Break

Fabricate


A20.2- Tack and weld all accessories

A21- Reserve Wheel Carrier

Bead Fabricate


A21.2- Loading U- Channel on Jig and tacking

A21.3- Final weld both side

A22- Connecting Plate

Welding


A22.2- Tack and weld connecting plate with bushing

A22.3- Assemble connecting plate with Trolley I beam and suspension

A22.4- Weld vertical connecting plate with trolley I beam and suspension

A22.5- Check welding appearance and surface finishing

A23- Grill Fabricate


A23.2- Loading RHS on jig and tacking

A23.3- Weld grill on both side

A23.4 Surface Finishing

A24- Frame Final Welding

A24.1- Loading and tightening frame on the jig

A24.2- Grooving a welding frame upper side flat position

A24.3- Grooving and welding frame another side flat position





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A24.4- Weld all side frame and accessories


A24.6- Turn and unloading frame from the jig

IV. CONCLUSIONS

Activity-based costing(ABC) is a method to determine true costs;- which becomes an important aspect of

manufacturing or service organizations and can be defined as a methodology that measures the cost and

performance of activities, resources, and cost objects, which can be considered as the best approach to

determine the true cost of a manufacturing/services organizations.

In this paper, the application of activity-based costing to automotive manufacturing is applied and the result is

also compared with the traditional cost accounting practice of the company so as to see if there is a difference

between these methods. It is a necessity to explain that there is a vigorous difference between the current cost

accounting procedures of the company and the results obtained from the activity-based costing. The present

traditional cost accounting uses a single cost driver and was not able to properly distribute overhead costs to

its services. By applying the ABC system, there is approximately a 3% cost difference compared to the TCA

system, which leads to the same difference in profit. It is clear that the ABC system determines product cost

more accurately than the existing TCA system because it classifies the overhead cost on activities and used

multiple cost drivers rather than a single cost driver which is in the case of the TCA system.

In general, based on the result of the study, the author highly recommends to the company with the following

points and the presented result can implicate to other similar companies to avoid non-value-adding activities

and improve the profit and efficiency of their manufacturing firm.

Activating the role of the modern costing system and train employees with course to enhance their skills

and awareness on the method so as to satisfy the requirement of business competition across the globe.

Applying the ABC system provides detailed insight on activities (value-added and non-value added) which

helps management to cut costs by eliminating activities that don’t add value and increase the efficiency of

existing activities and thus ultimately enhance the performance measured by cost and profit.

List of Abbreviations

ABC – Activity Based Costing

TCA – Traditional Cost Accounting

UCA – Unit Activity Cost

Declarations:

Availability of data and materials: The datasets generated and/or analyzed during the current study are not

publicly available due to the company’s data confidentiality but are available from the corresponding author on

reasonable request.

Competing Interests: The authors declares no conflict of Interest.

Funding Information: This research receives no external funding.

Authors’ Contribution: GT carried out the literature review and analyzed the theoretical data. The co-authors,

DK and KJ, provided comments and checked the quality of the paper and to this effect all co-authors have read

the paper.

ACKNOWLEDGMENT

The authors would like to express great appreciation to workers of Mesfin Industrial Engineering for their kind

cooperation while collecting data for the accomplishment of the paper.

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activity based costing applied to automotive manufacturing

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