Be the first to like this
With the rise of globalization and saturated local markets, many companies started chasing international opportunities that would help them expand to new countries and increase their brand recognition around the globe. This has also increased the level of competition in global perspective. The rising competition and the price cuts of the global market leaders narrow the price range and shrink the profitability of late comers in the industries. The only way that these firms survive in the fierce competitive markets is to control their costs which will eventually lead to an increase in profit margins. In the light of these trends, companies tried to search for ways to control their cost and get accurate product cost information that can be used in pricing decisions. Activity-based costing has been founded to fulfill this need in the market and it started to gain significance in the market immediately because of its efficiency and practicality. Moreover, activity-based model can also be used in decision making and strategy creation which would be used to guarantee long term success of the firm and help them gain the ability to react to the emerging trends in the markets.
One of the biggest challenges for companies that want to implement activity-based costing in their organization is to understand their industry dynamics and production environment so that they can adapt the existing methods to their specific case by identifying their business activities and analyze the cost they generate on products. Thus, the organization-wide trainings and top management buy-in are very important for the success of the project that is being implemented.
This research focuses on creating an activity-based costing model for UGS Foods by considering the industry specific dynamics of food production and unique methods that are present in olive processing environment. The activities that are being done during olive production will be listed to understand their impact on product costs. This will enable UGS Foods to totally understand the consequences of their decisions and optimize their business activities by considering the cost they create. After the accurate cost information for products are deduced from the system, they are mapped on profit potential – volume matrix to analyze their position and value for the company and to take specific decisions on long-term market strategy.
This study in general provides methods to implement activity-based costing in complex production environment like olives where the production flow and activities are complicated to differentiate from each other. Moreover, it presents a framework to analyze profit potential and volume of each product and create product portfolio strategy according their position on the matrix. This study helps UGS Foods to understand the role of each product for the company and support them to improve the product position in the market by giving recommendations depending on their position on the graph.