Activity Based Costing Analysis for Ba
Activity Based Costing Analysis for Band-aid
Introduction
Band-aid (BA) is a worldwide renowned wound care brand which has been produced in two manufacturing plants—Brazil and China. This analysis is for the factory in Shanghai, China, which mainly supports the sales in Japan, North America, Australia and China. On July, 2009, the operation team was asked to do the business plan for 2010, including the annual volume, the total production hours and the overall operation cost.
Based on the unique production process of Band-aid, there are seven work centers to go through from raw material and packaging material to the finish goods, including film coating, film slitting, strips making, cutting, sterilization, auto pack and manual pack. For each work center, the cost will be split into four types: Labor cost, Indirect overhead, direct overhead and machine depreciation. Here is the detail explanation.
Labor cost is the wages or salaries for the operator of each work center.
Direct overhead refers to the expense directly consumed by each work center, including the electricity, the gas, the petrol and the maintenance expense for each work center.
Indirect overhead stands for the cost which is not directly allocated to each production work center, including administration, personnel, training and other supporting expense.
Machine depreciation is the annual depreciation cost allocated for each work center, and for this part of cost, it’s allocated by finance team and cannot be changed by operation team.
The Band-aid operation team wants a cost improving plan in 2010 to benefit the whole company.
Data Analysis
During June and July every year, operation team will conduct the business plan for the next financial year based on the historical data and the forecast. Figure 1 shows the annual production prediction plan for 2010 with the historical data from 2006 to 2009.
(Figure 1)
The volume of 2010 is 3,254 million strips which is 10% more than the volume of
Introduction
Band-aid (BA) is a worldwide renowned wound care brand which has been produced in two manufacturing plants—Brazil and China. This analysis is for the factory in Shanghai, China, which mainly supports the sales in Japan, North America, Australia and China. On July, 2009, the operation team was asked to do the business plan for 2010, including the annual volume, the total production hours and the overall operation cost.
Based on the unique production process of Band-aid, there are seven work centers to go through from raw material and packaging material to the finish goods, including film coating, film slitting, strips making, cutting, sterilization, auto pack and manual pack. For each work center, the cost will be split into four types: Labor cost, Indirect overhead, direct overhead and machine depreciation. Here is the detail explanation.
Labor cost is the wages or salaries for the operator of each work center.
Direct overhead refers to the expense directly consumed by each work center, including the electricity, the gas, the petrol and the maintenance expense for each work center.
Indirect overhead stands for the cost which is not directly allocated to each production work center, including administration, personnel, training and other supporting expense.
Machine depreciation is the annual depreciation cost allocated for each work center, and for this part of cost, it’s allocated by finance team and cannot be changed by operation team.
The Band-aid operation team wants a cost improving plan in 2010 to benefit the whole company.
Data Analysis
During June and July every year, operation team will conduct the business plan for the next financial year based on the historical data and the forecast. Figure 1 shows the annual production prediction plan for 2010 with the historical data from 2006 to 2009.
(Figure 1)
The volume of 2010 is 3,254 million strips which is 10% more than the volume of