Toothpaste and Colgate- Palmolive

Topics: Toothpaste, Activity-based costing, Costs Pages: 9 (2002 words) Published: November 18, 2012
1.0 Introduction
Colgate- Palmolive is one of the leading consumer product organizations that have been dealing its products in worldwide. Colgate- Palmolive is an America based company and has many branches all over the world. One of the branches is located in Malaysia. Colgate- Palmolive (M) Sdn Bhd focusing their product segment on toothpaste and toothbrush. Both products are very competitive presently in Malaysia market. At the present, Colgate is implementing Activity-Based Costing (ABC) method. ABC is a system had been practices in many organizations for being a tool to measures the cost and performance of the activities and the cost objects. Hence, the management should look into ABC system which uses to provide more accurate information for decision making in determining costs by cost object such as product, customer, and location and the cost pool of the company.

2.0 Keys Areas for Improvement

According to Reuben Mark (2003), Colgate Palmolive has highlighted its strategy of developing and launching innovative new products globally continues to strengthen the company’s market leadership positions around the world. Hence, it does apply to Colgate Palmolive Malaysia. Indeed the implementation of activity based costing by Colgate Palmolive (M) provide information for achieving its plans since the ABC is costing technology that traces cost to products according to activities perform on them. Accurate cost information is produced as to such purposes; focusing company strategy, designing products to increase customer value, and continuously improving activities on the operation throughout the company (Peter, 1989).   In general, the ABC system cover such following area of activities including product design and processes, storage of raw materials, set up of machinery to ensure a smooth flow in the production line, machine operating time as well as cleaning of machine after each production.

Product design is crucially for Colgate Palmolive (M) to survive in the market and leading the position. Innovation allows the company to continue doing business and thus create the competitive advantage as to product differentiation. The research and development indeed plays role for this process such example where Colgate Palmolive worked on improving soap packaging through quality engineering (Boehmer, 2008). Meanwhile, storage of raw materials ensures the effectiveness of the company on handling its inventory. Chilshom (2000) stated that the potential areas for optimization in production is through shortening of product lead times in which leads the Colgate Palmolive (M) to an increase in machine capacity, a reduction of inventories, shorter, and a higher customer satisfaction thus also leads to increased revenues in a demand driven-market. Besides, by improving unit costs where a reduction of the units costs can be achieved by a high degree of machine capacity utilization. Having accurate cost data will allow Colgate Palmolive to identify activities which are not efficient and important, eliminate waste and reduce costs while improving the quality of the products.

3.0 Steps for Each Activity

      There are arguments stated that traditional costing (TC) method can misrepresent a cost of the product where it might have deceive the management doing the resolution relating products (Briers, M., Luckett, P. and Chee, C., 1997). According to Mansur, N. N., Tayles, M. and Pike, R. (2012), the TC method apportion the indirect costs based on a single element when the deciding a product cost. The element such as number of direct labour hour or number of machine hour was used to apportion the indirect costs. This has created unfairness in costs apportionment into product as different activity provides different incurrence of cost. Furthermore, different product consumed different level of costs in different activities. Therefore, ABC method is formed to solve the traditional costing flaw.

      ABC method emphasizes on...
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