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Activity based costing for injection molding / by Chad L. Skoug.

by Skoug, Chad L.

Activity-based costing

Injection molding of plastics

v, 93 leaves : ill. ; 29 cm.

Advisor: Cecil Head.

Committee members: Dr. Paul Hudec, Carol Mannino.

Introduction -- Background -- Traditional costing -- Activity-based costing -- Injection molding -- Background -- Importance of using ABC in injection molding -- Implementing ABC -- Implementation overview -- Applying direct costs to products -- Machine rate -- Indirect labor -- Applying indirect costs to products -- Combining all costs -- Benefits of ABC in injection molding -- Improved customer support -- Incremental costing -- Justifying new equipment -- A case for ABC -- ABC and injection molding -- Applying ABC to other industries -- The adaptability of ABC -- Conclusions -- Bibliography

Companies have lost the ability to track costs accurately. Eighty percent of companies today continue to depend on traditional costing to develop the final price of their finished goods. However, traditional costing has grown obsolete for most applications and needs to be replaced by a more accurate method of tracking costs.

In recent years, companies have begun turning towards Activity-Based Costing (ABC) to accurately track the costs of finished goods. However, ABC has been hyped as an extremely difficult concept that requires a team of accountants and outside consultants to implement effectively. Many small companies have felt that ABC is outside of their grasp. This is not the case.

ABC can be implemented by small companies and does not require a large sum of money or manpower. A basic ABC system can be developed without a large amount of difficulty. Many of the books, magazines, and journals about ABC lead people to believe that a complex system is needed. In reality, a simple ABC that is understood by managers is more effective and can be developed for nearly any company.

This thesis will show how ABC can be implemented in a small operation. A custom injection molder is used as an example. Injection molding works well as an example because there are many unique and varied processes. ABC can tie the processes and costs of injection molding together to accurately track the final prices of the plastic parts. Additionally, the ideas and concepts from implementing ABC in an injection molding company can easily be transferred to other industries.

Implementing ABC simply requires one person who understands the company and the major activities performed by employees. With this knowledge, the person can create the ABC model using the simple functions of a spreadsheet. The costs fall into a logical arrangement resulting in an accurate price for the finished good. As the company grows and changes, the spreadsheet can easily be changed as well.

With ABC in place, companies can provide much better customer support, initiate incremental costing when bidding on new jobs, and measure the impact that new equipment will have on the operation of the company. In short, ABC can make a manager’s job easier by providing more accurate information to allow better decisions to be made.

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