Characterisation of Activity Based Costing on Remanufacturing Crankshaft

Traditional cost accounting applied by most remanufacturing industries assumes that
manufacturing overheads are driven by the volume of production. However, this would
not give a good measure of the actual manufacturing cost per unit because the overheads
should actually be apportioned over the number of activities that are required to perform.
Eventually, the cost of remanufactured crankshaft becomes obviously incorrect while the
profitability becomes vague. The aim of this work is to estimate the cost of
remanufactured crankshaft using activity based costing. The overhead costs are
apportioned to activity drivers in accordance with the way resources are consumed and
then, the overhead costs are apportioned from each activity driver to each cost object in
proportion to the amount of the cost driver consumed by the product. The proposed
method is validated by an industrial practitioner and expected to be able to serve as a
useful approach because it produces a cost with accurate allocation of overhead, provides
cost information on the cost drivers and produces accurate manufacturing cost and
profitability information. This work is also supported by the Ministry of International
Trade and Industry of Malaysia by proposing accurate allocation of overhead to
strengthen the national remanufacturing policies for the development of remanufacturing
industries as these industries need to sustain their end of life products.