The case study presented here is company “A” which operates in the field of metal industry. The company produces seven different products. Two of these products share almost 60% of the total volume of production. The five other products are mostly customized, for example, different packing sizes. Metal is cut into pieces of two strips of various sizes and the packing is done in the same unit with cutting. ‘,
The company sells its products to 32 countries in all continents except in Africa, Australia and South America. It has several warehouses in various countries, mainly in the United States and continental Europe. The products are delivered in containers by external transportation companies that use ships, trucks and trains.
The cutting, packing, delivery and warehousing functions are analyzed from the ABC viewpoint. The cutting is performed with two cutting machines. One that cuts little pieces is largely automatic and requires three operators. The second machine, used in cutting strips, is manual and requires only two operators. The cutting in both machines should be considered as separate activities because the need for resources such as personnel, power and maintenance varies.
When considering the resource drivers, the activity has been identified for an appropriate unit, viz.,
1 drum ( = 200 kg) of pieces. The resource drivers are: 3 h of manpower per 18 drums in automatic,
2 h of manpower per 800 kg of strips in manual cutter, 1 h of maintenance per 288 drums, and 1 h of maintenance per 15 600 kg of strips. The cost objects are a drum and a strip. One drum of pieces requires approximately 25 cuts ( = 4 min). One strip requires 4 cuts (1.5 min) and the packaging line is automatic.
The next process considered for activity analysis is deliveries. The freight cost is fixed due to the use of external transportation companies. The activity here is the loading, and the resources required are manpower, electricity and maintenance for the fork truck. The resource drivers are: (a) 4 min of man- power per 1 pellet ( = 4 drums), (b) 1 h of electricity for battery loading for every 8 h of loading, (c) 1 h of maintenance for the fork truck for every 200 h of loading. The cost object is loading a container or a truck. The value of the activity drivers vary due to various container sizes and trucks. For example, the loading time for a large container is longer than that of the small container. The activities are un- loading, registration and loading. The resources required are: personnel for loading and registration, power and maintenance for the fork truck. The company mostly uses computer for registration and information. The cost objects are unload- ing, registration and loading for each shipment.
The following are some of the most important issues obtained from this case study concerning the implementation of ABC: (i) identification of cost objects, (ii) allocation of costs based on the re- sources consumed, but not averaging costs based on the number of machines used for performing the operation, (iii) identification of major critical activities