A clear view on product cost price – creating a time-driven activity-based costing system in a belgian medium-sized food manufacturer

Abstract

Based on cost information, companies make important decisions about pricing, product mix and investment. A thorough and clear view on product cost price is essential to any company. In our research company, a Belgium-based medium-sized food manufacturer, the currently-used cost system is falling down on its job. The obsolete cost system outputs static and outdated cost price data, which barely gives any useful indication for products pricing today. Our task is to redesign a new cost system that is able to adapt to new changes within the company and from markets and give accurate and succinct results to managers. The aim of this paper is to introduce the steps we followed to develop the new costing price model in the company, the methodology we choose and the reasons behind it. In the beginning of the text, we first take a close look at different types of commonlyused cost systems nowadays and the possible connections that can be made with various costs in our research company. Next, we follow to introduce how the currently-used model looks like, the main structure of it and the main defect. Then the paper moves to how we start our cost analysis, the procedures we followed to develop the model. For example, production procedures identification, costs grouping, cost model structure designing and then the most appropriate allocation method choosing for each part of costs. We realize that the key to best reflect the costing reality is to choose the most appropriate allocation methods for different costs. In our model, all the costs associated with various functions of the business is carefully taken into account and a mixed of cost systems is used. In the methodology part, we first clarify which cost systems we use for each part of cost components and our main assumptions. A clear cost structure of is shown after that. Which starts from production cost and production overhead, followed by warehouse