The Application Of ABC And ABM To A Cement Industry

The activity-based costing (abbreviated to ABC) is a completely new costing management theory and method. The research work of ABC was started in western countries in 1980s. Ever since 1990s, some advanced companies first put it into use.The traditional cost system differs from ABC most greatly in allocation of those non-direct expenses (overhead expenses). The traditional cost system assigns the costs to a specific product based on the volume (the numbers of product, direct labor hours, or machine hours), which does not care if those costs really have something to do with the volume or not. The traditional cost system allocates costs in two steps: the first assigns overhead expenses to responsibility or cost centers; the second allocates these expenses to specific products according direct labor hours or the volume of units produced. Organizations producing and selling multiple products and services may find that a greater percentage of costs depend upon the number of services of product variations offered, rather than on direct labor hours consumed or units produced.Since 1970s, ABC has developed greatly with the quick development of high-tech and new-tech. ABC assigns costs in this way: first it identifies cost subjects, cost objects and activities bridging cost subjects and cost objects. Second, it assigns costs according to cost drivers to cost objects, so that accurate cost of products or services can be calculated, and the decision making of pricing, segmentation, and customer profitability can be supported by reliable information.After China's entering into WTO, the biggest 500 companies in the world have rushed into China one by one, speeding up the challenge of manufacture industry of China. For most china's manufacturers lack advanced technologies and new equipment and produce almost the same kind of products, they have to compete with each other on the market by lowering prices of products. Low cost has become the last straw for them.This thesis chooses a cement company in China as a case study of ABC application. Using ABC method, the thesis assigns the costs of the company (non-direct expenses) to the two production lines, trying to find out the accurate cost and making some decisions. At the same time, the thesis also manages to remind domestic manufacturers producing the same products, having a little profit, and often challenging each other through low pricing: make clear the costs of your own products as soon as possible.