AN APPLICATION OF ACTIVITY BASED COSTING IN THE AIR CONDITIONER MANUFACTURING INDUSTRY

Abstract

AIRCO is a manufacturer of industrial air conditioner units whose management is concerned that their current traditional cost accounting (TCA) system is not accurately representing their product cost behavior. Under certain operating conditions, an activity based costing (ABC) system can provide relevant and accurate indirect cost information that assists in making customer, product, and process improvement decisions. An ABC system was successfully developed for AIRCO that indicated that their products do not consume overhead costs on a volume basis as represented by their current TCA system. Valuable product and process information were obtained. This case study details the development process that was used and the results that were obtained during the ABC analysis.

ACKNOWLEDGEMENT

The authors would like to acknowledge Mr. Yun Han Long for his data collection assistance.

Additional information

Notes on contributors

Heather Nachtmann

Heather Nachtmann is an Assistant Professor of Industrial Engineering at the University of Arkansas. She received her Ph.D. in Industrial Engineering from the University of Pittsburgh. Her research interests include economic decision analysis, engineering valuation, and supply chain management. She is a member of AACE International, ASEE, ASEM, IIE, and INFORMS.

Mohammad Hani Al-Rifai

Mohammad Hani Al-Rifai is currently a Ph.D. student in the Department of Industrial Engineering at the University of Arkansas. He received his B.S. and M.S. degrees in Mechanical Engineering from Jordan University of Science and Technology. His Ph.D. research is in the remanufacturing area. He is a member of JEA, ASME, and IIE.