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Implementation of Activity Based Costing - a case study at a make-to-order company

Sallbring, Sebastian LU and Levin, Karl-Emil LU (2011) MTT920 20102
Packaging Logistics
Abstract
Four problem areas with FrontPac‟s previous cost estimation system were identified. First, only a few properly skilled employees are actually able to perform cost estimations due to the system‟s user requirements. Second, salespersons cannot estimate the cost for orders by themselves which significantly increases the time to approximate price in the sales process. Third, neither can they perform sensitivity analyzes on the cost estimations. Final, the system relies on old and static machine costs that cannot be easily updated as the organization changes.

The purpose of this master thesis is twofold. The first purpose is to develop a cost estimation system that enables the salespersons to estimate the cost for FrontPac‟s packaging... (More)
Four problem areas with FrontPac‟s previous cost estimation system were identified. First, only a few properly skilled employees are actually able to perform cost estimations due to the system‟s user requirements. Second, salespersons cannot estimate the cost for orders by themselves which significantly increases the time to approximate price in the sales process. Third, neither can they perform sensitivity analyzes on the cost estimations. Final, the system relies on old and static machine costs that cannot be easily updated as the organization changes.

The purpose of this master thesis is twofold. The first purpose is to develop a cost estimation system that enables the salespersons to estimate the cost for FrontPac‟s packaging products, in order to improve the four problem areas stated in the problematization. The second purpose is to develop a suggested procedure for implementation of ABC in make-to-order companies.

The thesis is conducted as a single case study at the packaging manufacturer FrontPac. In the thesis multiple research methods have been used in order to collect and process necessary data. Due to the lack of quantitative data, research methods such as interviews and observations have been the predominant choice for collecting data. Internal and external documents have also been utilized in order to collect cost data and to build the theoretical foundation. The largest threat to the validity of the suggested implementation procedure is the generalizability, since it is merely based on a single case study.

The developed cost estimation system, which has a higher degree of standardization than the previous system, has led to improvements for FrontPac in four main areas; number of users, time to approximate price, sensitivity analysis and dynamic aspects. This was achieved at the expense of a slight loss in accuracy in the cost figures for approximate cost estimations. The master thesis also resulted in a suggested procedure for ABC implementation, which consequently is customized for make-to-order companies. Its main advantages are that it provides a step-by-step approach with practical guidelines and has a clear project focus. (Less)
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author
Sallbring, Sebastian LU and Levin, Karl-Emil LU
supervisor
organization
course
MTT920 20102
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Implementation, FrontPac., Packaging Manufacturer, Make-to-order, Cost Estimation System, Activity Based Costing
language
English
id
1748951
date added to LUP
2011-01-04 14:53:56
date last changed
2011-01-17 20:18:51
@misc{1748951,
  abstract     = {Four problem areas with FrontPac‟s previous cost estimation system were identified. First, only a few properly skilled employees are actually able to perform cost estimations due to the system‟s user requirements. Second, salespersons cannot estimate the cost for orders by themselves which significantly increases the time to approximate price in the sales process. Third, neither can they perform sensitivity analyzes on the cost estimations. Final, the system relies on old and static machine costs that cannot be easily updated as the organization changes.

The purpose of this master thesis is twofold. The first purpose is to develop a cost estimation system that enables the salespersons to estimate the cost for FrontPac‟s packaging products, in order to improve the four problem areas stated in the problematization. The second purpose is to develop a suggested procedure for implementation of ABC in make-to-order companies.

The thesis is conducted as a single case study at the packaging manufacturer FrontPac. In the thesis multiple research methods have been used in order to collect and process necessary data. Due to the lack of quantitative data, research methods such as interviews and observations have been the predominant choice for collecting data. Internal and external documents have also been utilized in order to collect cost data and to build the theoretical foundation. The largest threat to the validity of the suggested implementation procedure is the generalizability, since it is merely based on a single case study.

The developed cost estimation system, which has a higher degree of standardization than the previous system, has led to improvements for FrontPac in four main areas; number of users, time to approximate price, sensitivity analysis and dynamic aspects. This was achieved at the expense of a slight loss in accuracy in the cost figures for approximate cost estimations. The master thesis also resulted in a suggested procedure for ABC implementation, which consequently is customized for make-to-order companies. Its main advantages are that it provides a step-by-step approach with practical guidelines and has a clear project focus.},
  author       = {Sallbring, Sebastian and Levin, Karl-Emil},
  keyword      = {Implementation,FrontPac.,Packaging Manufacturer,Make-to-order,Cost Estimation System,Activity Based Costing},
  language     = {eng},
  note         = {Student Paper},
  title        = {Implementation of Activity Based Costing - a case study at a make-to-order company},
  year         = {2011},
}