Implementing an activity based costing system in a printing press : a case study of Union Print Company Limited

Abstract

This study was conducted for the main purpose of improving the efficiency and effectiveness of the cost accounting system of Union Print Company Limited. An accurate and reliable costing system is essential for a firm operating in a competitively intense environment, and the printing industry is characterised by intense competition. Proper cost information is required by management so that informed decisions can be made which will lead to better and more profitable performance. Activity Based Costing is an ideal tool that can be used by management to take various important decisions, such as identifying areas in the company where process improvements are needed, measuring the profitability of customers, customer types, print jobs and other cost objects, evaluating alternative capital investments needs and opportunities, and other strategic and operating decisions. Union Print is an ideal candidate m which to implement Activity Based Costing. This is because the work done in a printing press is made up of various processes, and each process is made up of clearly identifiable activities. Before working on the design of the Activity Based Costing system an adequate accounting system had to be put in place as the information for the Activity Based Costing system is obtained from the accounting system. After the accounting system was designed activities were identified, resource drivers were chosen so that ledger costs can be allocated to activities, and then activity drivers were chosen so that activity costs can be allocated to the various cost objects chosen by management. The superiority of Activity Based Costing over the current costing system of Union Print was shown by identifying the major flaws of the current system and then by showing how Activity Based Costing eliminates these flaws. The major benefits obtained by the Activity Based Costing system are that most support expenses can be charged to activities on a cause-and-effect basis, various cost objects can be chosen to which activity costs can be allocated, any unutilised or excess capacity can be identified, and information can be provided to management on time. The study also shows how management can make best use of the Activity Based Costing system. Training has to be provided to management to help them understand the capabilities and uses of the system. Also, new reports have to be developed so that management can interpret the information provided by the system. The information provided to management must be accurate, reliable, relevant and timely. The activity based costing system must be kept up to date by identifying whether activities have to be added, changed or removed. Finally the study shows that activity based information can and should be used to implement Activity Based Management. Activity Based Management is when management used Activity Based Costing Information to improve the financial performance of the company. It was also suggested that Union print considers implementing the Balanced Scorecard in the future.