Activity Based Costing

What was delivered? $150,000 benefit to the bottom line/year

  • $83,000 in reduced operating costs through increased operating efficiencies – Table4
  • $67,000 in revenue due to the additional recycling of ‘waste materials’ – Table5

A few years ago I worked with a large NZ based multinational manufacturer – they were considering to outsource their internal waste management. The waste products (e.g. metal, concrete, paper, wood offcuts) were carted by truck to the dump or to a depot for collection by a contractor. I was asked to compile a benchmarking excise in order to establish the competitiveness of their internal cost structure versus a number of external waste management specialists companies.

The internal costs were compiled in a traditional manner (Table1) and the costs per trip (Table2) provided only an average costs without being very meaningful – in order to tease out the real internal costs by key activity, I needed to analyse the daily routes, collect data on the number of pick ups, type of materials collected and speak with the drivers.

The ABC exercise delivered valuable insights re the costs per route/trip, particularly with regard to variability of the costs (Table3) as they depended:

The duration of the trip/length of route, b. type of truck used (lugger truck vs. truck with hoist), c. the cost of the driver (different skill levels), d.the type of material collected

Outcome: the cost per activity provided a in-depth view were the costs fall – and raised a series of questions why are some trips more expensive than others, are the internal truck drivers able to add value in ways that a external could not, eg utilise internal knowledge and established communication channels.

PDF24    Send article as PDF