Design and Implementation of Activity-Based Costing in a Communication Company

This paper reports on a case study that describes the implementation of activity-based costing (ABC) for a Taiwan communication company. Through an in-depth field investigation over a communicationequipment factory, the ABC was invoked to analyze the cost generated by the actual production processes in the present study. The company’s existing cost system adopts a rough estimate based to allocate support department cost and uses the direct labor hour to allocate the conversion costs to products. The weakness in the design and application of costing leads to product cost distortions. Relative to the ABC system, the existing cost system overestimates the costs of high-direct-labor-hour products and underestimates the costs of products with high production-complexity. Instead of the tradition costing (TC) or the conventional costing or the simple costing with the single indirect-cost pool and arbitrary allocation bases, the ABC create homogeneous cost pools (activities) linked to different cost-allocation base that has a cause-and-effect relations. The comparison between the ABC and the TC was also given in this paper. The results reveal that the introduction of the ABC can provide more correct information of the unit cost, more reasonable information of the activity center, and non-financial information of the production system. Key-Words: Activity-based Costing (ABC), Traditional Costing (TC), Conventional Cost, the simple costing, ABC implementation, Cost Driver