A Comparative Study of Traditional Costing and Activity – Based Costing in Iran Tractor Forging Co.

Subject Areas : Business Management

Rasool Baradaran Hasanzadeh ¹ , Mirjavad Seyed nejhad ²

1 - Assistant Professor, Islamic Azad University, Tabriz Branch, Accounting Department, Tabriz, Iran
2 - Member of the faculty of Islamic Azad University of Jolfa Branch

Received: 2007-10-11 Accepted : 2007-12-17 Published : 2008-02-20

Keywords: Management Accounting, Costing Systems, Traditional Costing, Activity-Based Costing, Unit Cost, Unit Gross Income,

Abstract :

In this Research , Activity-Based Costing (ABC) system was used in the forging company and the similar companies for calculating the cost of the products and also presenting the proper information to help the managers take proper decisions. So, first of all, the available costing of the company was analyzed and then the cost of the product was calculated according to the existing system of the company. After these steps, we proceeded to design the ABC system appropriate for the company. For this  purpose,the various activities which were taken in the production and services units were identified and classified in four levels as the activity, the product unit , the product band and the factory. Afterwards,the cost of ptoduct was calculated according to ABC method,and the cost of product in both methods was compared. The results are as follows: The activity-based costing system causes more precise and accurate allotment of the overhead expenses in Iran Tractor Forging company. So, the cost of the materials and wages is directly allocated to the products as it is used in the traditional method. And another result which was obtained from this system is the difference in the gross profit for each product. The hypotheses of this research include : Main hypothesis   : There is the possibility of ABC system use in the company. Secondary hypothesis 1: There is a difference between unit cost according  to activity-based costing and traditional system. Secondary hypothesis 2: There is a difference between unit gross income according to activity based costing system and traditional system. In this research the statistical method T-test was used besides the results gained from the analysis and comparison of the ABC system and traditional system.The main conclusion is that the  secondary hypotheses 1 and 2 are rejected,and the main hypothesis is confirmed.

References:

Alivar, A. (1999). Introduction to Some Basic Concepts of Management Accounting. Auditor's Journal, 5 & 4, (In Persian).

Alivar, A. (2002). Industrial Accountancy. Tehran: Audit Organization Publication, (In Persian).

Arab Mazad Yazdi, M. (1998). Industrial Accountancy. Tehran: Payame Noor Publication, (In Persian).

Arab Majzad Yazdi, M., & Naseri, M. (2003). Feasibility Study on Designing a Cost-Effectiveness Model for Bank Deposits by ABC. Journal of Tehran University's College of Management, Accounting and Auditing, 34, (In Persian).

Arabi, M., & Goodwill, H. (2000). Cost-Based Activity. Accounting Journal, 133, (In Persian).

Chongruksut, (2002). The adoption of Activity Based  Costing in the Thailand. Uictoria University.

Cooper Robin, E. (2002). Activity-Based Costing. Translated by: A., Azizi & A., Modarres, Tehran: Audit Organization Publication, (In Persian).

Cooper, R. (1990). Five Steps to ABC System Design. Accounting.

Houman, A. (1999). Industrial Accountancy. Tehran: Naghshe Jahan Publishing, (In Persian).

Natter, W. (1997). Applied Statistics. Translated by: A., Amidi, Tehran: Nashr Publishing, (In Persian).

Nazari, R. (1995). Cost-Based Activity. Accounting Journal, 112, (In Persian).

Sajjadinejad, H. (2003) .Cost Principles and Industrial Accounting Methods, Tehran: Audit Publishing, (In Persian).

Sorkhani M. (2003). Industrial Accounting. Tehran: Aydin Publishing, (In Persian).

Turney, P. B. B.  (1991).  How Activity Based Costing Helps Reduce Cost. Journal of Cost Management for the Manufacturing Industry, 4.