Design and Implement the Activity-Based Costing in Taiwan Firm

Abstract

We design and implement the activity-based costing (ABC) to the communication firm in Taiwan which originally adopted the existing traditional costing method (TC) to measure the unit cost. In contemporary research, the activity-based costing (ABC) was utilized to measure and analyze the product unit cost in production process. This firm originally adopted a roughly estimate based in cost system to allocate support department cost, meanwhile it adopted the direct labor hour (DLR) to allocate the conversion costs to products. This original traditional costing (TC) has the weakness on distorting the product unit cost since it pulls all of costs into the single pool and activity. We collected and analyzed field data for 24 months through interviews, files gathering, and cost data to analyze B Company's product characteristics, production process, and existing costing during 2010 to 2012. We compared and contrasted B firm implemented both ABC and TC cost allocation method on unit cost, the activity center and production system. Our researches focus on analyzing the existing cost accounting system, designing a practical ABC system and applying ABC on the support-cost allocation, comparing the cost data under the existing cost system and ABC, and providing the suggestion about the ABC implementation follow-up activities.Our results found that the traditional cost system in this firm overestimates the costs of high direct labor-hour products and underestimates the costs of high complexity products. Instead of the tradition costing (TC) or the conventional costing or the simple costing with the single indirect-cost pool and arbitrary allocation bases, the ABC creates homogeneous cost pools (activities) linked to different cost-allocation bases that have cause-and-effect relationships. Finally, our findings are that the implementation of the ABC provided more accuracy in allocating the unit cost, more reasonable information and cost allocation for the activity center, and non-financial information for the production system.