Development of a product-costing model oriented to productive capacity analysis

Purpose of this paper is to present a new cost accounting model to estimate the standard product cost. This model, named Enhanced Full Manufacturing Costing (EFMC), makes an extensive use of Production Job Orders to collect cost data; through this technique, the traditional cost allocation procedure and cost centres classification is reviewed. It represents an intermediate step between Absorption and Activity Based Costing: it gives the solution for the well-known limits of the former without the economic impacts and the complexity of ABC, which makes the presented model suitable for small-medium enterprises requirements. Moreover the model identifies the share of standard product costs due to available unused productive capacity: such contribute is strategic for enterprise management because it gives an evaluation parameter for planning effectiveness and it supports decision-making. Our proposal has been tested on a chemical-pharmaceutical plant: the EFMC implementation has lead to a more reliable estimate for standard product cost and an exhaustive data collection for productive capacity analysis which have been used for line balancing.