This article focuses on the implementation of Activity-Based Costing (ABC) in a packaging company (XYZ). The ABC costs are used to arrive at a product mix model. It describes a procedure that allows the company to switch over from traditional costing to the ABC. The article also recommends a balanced approach for beginners.

Manufacturing firms face ever-increasing competition in today's global marketplace. Companies must react quickly and manufacture high quality, but low cost products to be successful in this new environment. To make proper decisions, managers should have accurate and up-to-date costing information. Traditional Costing systems based on the volume-based allocation of overhead have lost relevance in manufacturing environment that has seen a sharp increase in overhead and a subsequent decline in direct labor. The traditional costing systems tend to distort product costs and lead to poor strategic decision-making. (Roztocki N, Valenzuela JF, A Procedure for Smooth Implementation of ABC in Small Companies.)

ABC provides a simple solution to achieve at correct costs and also gives a fair view of the process, which is very important for a manufacturing firm. The model that is mostly referred to in the implementation of ABC at company XYZ, a packaging company, is CAM-I model.

The cost perspective highlights the interrelationship among functional areas since cost incurred in one area is often the result of activities in other area. The process view of the ABC allows management to focus on the value adding and non-value adding activities to reduce or eliminate those activities that are not value-adding but are causing the cost to incur.

Implementation of Activity-Based Costing and Product Mix Model, packaging company, traditional costing, Manufacturing firms, global marketplace,
high quality, managers, departments, printing, lamination, customized products, Personnel wages, Administration, Consumables, dynamic business, investment.