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Activity-Based Costing at Electric Storage Battery Company

Introduction

The Electric Storage Battery Company was established near Philadelphia in 1888. It marketed its first Exide battery in 1900. Its growth record was dramatic over time, fuelled by the growth of the automobile industry in the US and Europe. Its success could be largely attributed to product innovation, better use of battery inputs, and successful acquisition bids of competitive and rival firms, big and small. Its name was changed to Exide Corporation, (now Exide Technologies) and in 1991, it sold its industrial battery division to Yuasa Inc. and has remained a separate public limited company since then. (Electric storage battery company know (now Enersys) – new jersey 1945, 2009).

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Need for implementation of ABC in the manufacturing industry

Apportionment of costs to activities, rather than arbitrarily on goods and services, forms the basis of ABC. Thus, assets and costs are correctly attributed to products and services that use them. (Activity-based costing (ABC): What is it and how can reengineering teams use it, 2001).

ABC has become a vital feature of manufacturing/service organizations working towards acquiring a major share in the global markets. ABC knowledge has been increased due to novel methods of productivity and quality improvement techniques that make it easy for augmentation to respond to ABC in present-day manufacturing units and a suitable structure for the administration of better productivity and quality concerns (Gunasekaran, & Sarhadi, 2009).

This has also been the driving force behind the success of Exide, the battery major that uses ABC in most of its manufacturing operations.

Name and nature of Organization

Exide Technologies has operations in more than 80 countries of the world and is the global leader in the production and recycling of lead-acid batteries. (Exide technologies top host fiscal 2009 fourth quarter and full-year results conference call, 2009).

Activity and period used

The activity used is the study of present-day costing systems used in the manufacturing of batteries to be used in automobiles and other commercial applications. The period for the survey would be three weeks.

Inputs

The main aspect of activity-based costing is that overheads would be apportioned based on activity and not only machine hour, or labor hour rate, which is the conventional method. This would bring costs more in line with realistic and actual costs since the emphasis would be on activities generated and produced by each batch, process, or contract, and not on drivers of cost, or basis of allocation. In the case of lead-acid batteries, the main activities would be the filling of a mixture of red lead and diluted sulphuric acid into the plates.

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Results

The main kind of overheads used in the manufacture of lead-acid batteries By Exide would be electricity, wages of the workforce, automated machine hours (including depreciation charges of machines) used in processing and manufacturing of dry batteries.

The activity-based costing would be in terms of filling and sealing of acids, grid separating and positioning, and the filling of lead chambers. The main aspect of lead-acid batteries is the risk of explosion and functional damages, due to inherent manufacturing defects, that could significantly curtail its useful life and also expose its users to various risks. Thus, the main idea would be to reduce costs, cut down superfluous operations, and induce efficiencies in product making.

Conclusion

The main area that this study needs to concentrate on is the efficacy of ABC over conventional cost absorption systems. The relative benefits in the context of an Electric Storage Battery company need to be assessed and highlighted.

It could also be seen in terms of ensuring that overhead absorption is done based on genuine and accurate data, devoid of over absorption or under absorption of overheads, based on arbitrary methods like machine hour or labor hour rates, which may not be a true indicator of actual costs. This is also important since real costs are needed to arrive at correct pricing and profit margins, especially in a competitive battery-making business. Exide realizes that achieving efficiencies in product costing and loss reduction are as important as achieving profits and long-term business gains in the battery-making business.

References

  1. Activity based costing (ABC): What is it and how can reengineering teams use it: ABC what is it. (2001). BPR Online Learning Center.
  2. Exide technologies top host fiscal 2009 fourth quarter and full year results conference call. (2009). Exide Technologies.
  3. Gunasekaran, A., & Sarhadi, M. (2009). Implementation of activity based costing in manufacturing: Abstract. ScienceDirect.

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StudyCorgi. (2022, April 28). Activity-Based Costing at Electric Storage Battery Company. Retrieved from https://studycorgi.com/activity-based-costing-at-electric-storage-battery-company/

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StudyCorgi. 2022. "Activity-Based Costing at Electric Storage Battery Company." April 28, 2022. https://studycorgi.com/activity-based-costing-at-electric-storage-battery-company/.

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StudyCorgi. (2022) 'Activity-Based Costing at Electric Storage Battery Company'. 28 April.

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