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The Design and Implementation of Activity-Based Costing In a Textile Company
Rong - Ruey Duh, National Taiwan University
Thomas W. Lin, University Of Southern California
Wen - Ying Wang, National Chengchi University
Chao - Hsin Huang, National Taiwan University
ABSTRACT. We conducted an in-depth field investigation on the design and implementation of activity-based costing system for a textile company in Taiwan with the following findings: (1) the existing cost system adopts a volume-based cost driver to allocate overhead costs to products. While the company devises an “equivalent factor” to consider production-complexity, the inaccurate design and application of the equivalent factor leads to product cost distortions; (2)the existing system ignores the impact of rework on product costs; (3)adding complexity-related cost drivers to the volume-based cost driver explains better variances in overhead costs; (4)the newly designed ABC system incorporates volume- and non-volume- based drivers, and also considers the effect of rework on product costs; (5) the company stays at the analysis but does not move to the action phase of implementation due to lack of linkage to incentive systems, MIS support, and inventory control.
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