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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
A9.7- Transfer to axle station
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
A12.1- Check each accessory dimension as per Drawing
A12.2- Wheel Carrier bead tacking and welding
A12.3- Fuel Carrier plate tacking
A13 - Suspension Cover Plate
A13.1- Check each accessory dimension as per Drawing
A13.2- Welding suspension cover plate
A13.3- Check and surface finish
A13.4- Transfer to axle station
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
A15.1- Check each accessory dimension as per the drawing
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
A17.1- Check each accessory dimension as per the drawing
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
A18.1- Check each accessory dimension as per the drawing
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
A19.1- Check each accessory dimension as per the drawing
A19.2- Tack and weld male and female Hinge
A20 -Mechanical Hand Break
Fabricate
A20.1- Check each accessory dimension as per the drawing
A20.2- Tack and weld all accessories
A21- Reserve Wheel Carrier
Bead Fabricate
A21.1- Check each accessory dimension as per the drawing
A21.2- Loading U- Channel on Jig and tacking
A21.3- Final weld both side
A22- Connecting Plate
Welding
A22.1- Check each accessory dimension as per the drawing
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
A23.1- Check each accessory dimension as per the drawing
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
A24.5- Check and surface finish
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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