MANUFACTURING ACTIVITIES

Manufacturing Activities Should Be Carried Out Where the Resource Costs Are Lowest



Manufacturing Activities Should Be Carried Out Where the Resource Costs Are Lowest

Introduction

Conventional cost systems can report seriously distorted product costs when the products that are manufactured are diverse. In particular, size and batch-size diversity can affect the accuracy of reported product costs. Activity-based costing (ABC) is the answer. It is a development in product costing that has attracted much attention in the last few years. Conventional cost accounting systems focus on units of particular products (Prahalad and Hamel, 2009). Costs are allocated or “traced” to a product because each unit is assumed to consume resources. Therefore, conventional allocation bases measure only attributes of a unit, for example, the number of direct labour hours, machine hours or material costs consumed in making the product.

By contrast, ABC systems focus on the activities performed to produce products in the manufacturing process. Costs are traced from activities to products based on each product's consumption of the activities performed (Cooper, 1990a). ABC acknowledges that products or services do not directly use up resources; they use up activities. ABC systems differ from traditional cost accounting systems in the nature of cost drivers used to trace costs.

Example of Primark- A Brief Introduction of Primark

This paper wil present the example of Primark as we know that since the mid 2000s, Primark has emerged as one of the UK's most successful high street chains, now the country's second largest clothing retailer by volume according to TNS, and the single largest in the value sector, having overtaken Asda's George in 2007. It was named as Value Retailer of the Year in that year's Drapers Record awards. The business is the last UK retail interest controlled by diversified conglomerate Associated British Foods, whose other divisions are involved mainly in packaged foods and ingredients manufacturing (Prahalad and Hamel, 2009).

As a result of rapid expansion, Primark now has more than 170 stores in the UK and Ireland, with combined selling space of around 5m square feet. Under the slogan "Look good, pay less", Primark offers stylish, high quality apparel under a number of different own-label lines including Atmosphere, Secret Possessions and Primark Essentials womenswear, Cedarwood State for men, Rebel for the teen market and Early Days for children. It operates in the Republic of Ireland under the Penneys name, and opened its first outlets in Spain in 2006 as Primark Tiendas. Following the success of this early test, a further 12 stores opened in Spain, as well as new test outlets in Germany, Portugal, the Netherlands and Belgium.

The company is best-known for high-quality merchandise at extraordinarily competitive prices. Like Zara, Primark has streamlined its production systems to ensure the fastest possible turnaround of new designs, many based on the work of designers whose creations sell for thousands rather than tens of pounds. Yet the company also operates an exceptionally effective buying policy, outsourcing its manufacturing to developing markets, and stripping costs and its own overheads to the ...