Traditional Costing Methods and Their Limitations

Oct 13, 2025 by thesweetdesigns.com 5 views

Introduction

PT Guna Kemas Indah, a company located in Tanjung Morawa, Medan, North Sumatra, is a leading manufacturer of various types of plastic cups, including Cening Cup, Cup Printing, and Lolly Cup. The company's main raw materials are Titro Propylenna 6531, Titanlene, and Afal, which are imported from outside the city. Despite its success in the plastic packaging industry, PT Guna Kemas Indah still uses traditional methods to determine production costs, which can lead to inaccurate cost allocation and distortion in the allocation of costs. This article aims to analyze the production costs of PT Guna Kemas Indah using the Activity Based Costing (ABC) approach, a method that focuses on activities that cause costs and uses a cost driver that is directly related to these activities.

Traditional Costing Methods and Their Limitations

Traditional costing methods, such as the absorption costing method, allocate costs evenly across departments or sections. However, this approach can lead to inaccurate cost allocation and distortion in the allocation of costs. As a result, companies may experience undercost or overcost on certain products. In the case of PT Guna Kemas Indah, the traditional costing method may not accurately reflect the true costs of production, leading to inaccurate decision-making and reduced competitiveness.

Activity Based Costing (ABC) Approach

The ABC approach is a method of costing that focuses on activities that cause costs and uses a cost driver that is directly related to these activities. This approach provides more accurate and relevant cost information for each product, allowing companies to make more informed decisions about production strategies, resource allocation, and selling prices. The ABC approach involves the following steps:

Identify activities: Identify the activities that cause costs, such as production, marketing, and distribution.
Assign cost drivers: Assign a cost driver to each activity, such as the number of units produced or the number of customers served.
Calculate costs: Calculate the costs associated with each activity using the cost driver.
Allocate costs: Allocate the costs to each product or department based on the cost driver.

Application of ABC at PT Guna Kemas Indah

The ABC approach was applied to PT Guna Kemas Indah to determine the production costs of each type of cup. The results of the calculation are as follows:

Clear Cup: Rp. 21/gr
Cup Printing: Rp. 12.07/gr
Cup Lolly: Rp. 34.23/gr

The results indicate a significant difference in the production costs of each type of cup, suggesting that the traditional costing method may have led to undercost or overcost on certain products.

Benefits of ABC at PT Guna Kemas Indah

The application of ABC at PT Guna Kemas Indah has several benefits, including:

More appropriate decision making: Accurate cost information allows companies to make more informed decisions about production strategies, resource allocation, and selling prices.
Increased efficiency: By understanding the most cost activities, PT Guna Kemas Indah can optimize the use of resources and reduce waste.
Increased competitiveness: The more accurate cost of production allows companies to set more competitive selling prices and increase competitiveness in the market.

Conclusion

The ABC approach provides a more accurate and relevant method of costing than traditional methods. By applying the ABC approach, PT Guna Kemas Indah can improve its efficiency, profitability, and competitiveness in the plastic packaging industry. The benefits of ABC include more appropriate decision making, increased efficiency, and increased competitiveness. While the application of ABC requires extra time and effort, the benefits obtained will be very significant in the long run.

Recommendations

Based on the analysis of production costs using the ABC approach, the following recommendations are made:

Implement ABC: PT Guna Kemas Indah should implement the ABC approach to determine production costs and improve decision making.
Monitor costs: The company should regularly monitor costs to ensure that the ABC approach is accurate and relevant.
Optimize resources: The company should optimize the use of resources to reduce waste and increase efficiency.

By implementing the ABC approach and following these recommendations, PT Guna Kemas Indah can improve its efficiency, profitability, and competitiveness in the plastic packaging industry.

Introduction

In our previous article, we discussed the application of Activity Based Costing (ABC) at PT Guna Kemas Indah, a company that produces various types of plastic cups. The ABC approach provides a more accurate and relevant method of costing than traditional methods, allowing companies to make more informed decisions about production strategies, resource allocation, and selling prices. In this article, we will answer some frequently asked questions (FAQs) about ABC at PT Guna Kemas Indah.

Q: What is Activity Based Costing (ABC)?

A: ABC is a method of costing that focuses on activities that cause costs and uses a cost driver that is directly related to these activities. This approach provides more accurate and relevant cost information for each product, allowing companies to make more informed decisions.

Q: How does ABC differ from traditional costing methods?

A: Traditional costing methods, such as absorption costing, allocate costs evenly across departments or sections. ABC, on the other hand, focuses on activities that cause costs and uses a cost driver that is directly related to these activities.

Q: What are the benefits of using ABC at PT Guna Kemas Indah?

A: The benefits of using ABC at PT Guna Kemas Indah include more appropriate decision making, increased efficiency, and increased competitiveness. By understanding the most cost activities, the company can optimize the use of resources and reduce waste.

Q: How does ABC help PT Guna Kemas Indah to improve its decision making?

A: ABC provides accurate and relevant cost information for each product, allowing PT Guna Kemas Indah to make more informed decisions about production strategies, resource allocation, and selling prices.

Q: What are the steps involved in implementing ABC at PT Guna Kemas Indah?

A: The steps involved in implementing ABC at PT Guna Kemas Indah include:

Identify activities: Identify the activities that cause costs, such as production, marketing, and distribution.
Assign cost drivers: Assign a cost driver to each activity, such as the number of units produced or the number of customers served.
Calculate costs: Calculate the costs associated with each activity using the cost driver.
Allocate costs: Allocate the costs to each product or department based on the cost driver.

Q: How does ABC help PT Guna Kemas Indah to reduce waste and increase efficiency?

A: By understanding the most cost activities, PT Guna Kemas Indah can optimize the use of resources and reduce waste. This can lead to increased efficiency and reduced costs.

Q: What are the challenges of implementing ABC at PT Guna Kemas Indah?

A: The challenges of implementing ABC at PT Guna Kemas Indah include:

Data collection: Collecting accurate and relevant data is a challenge in implementing ABC.
Cost driver identification: Identifying the correct cost drivers is a challenge in implementing ABC.
Calculation and allocation: Calculating and allocating costs to each product or department can be a challenge in implementing ABC.

Q: How can PT Guna Kemas Indah overcome the challenges of implementing ABC?

A: PT Guna Kemas Indah can overcome the challenges of implementing ABC by:

Developing a robust data collection system: Developing a robust data collection system can help to ensure accurate and relevant data.
Identifying the correct cost drivers: Identifying the correct cost drivers is crucial in implementing ABC.
Seeking expert advice: Seeking expert advice can help to overcome the challenges of implementing ABC.

Conclusion

In conclusion, ABC is a powerful tool that can help PT Guna Kemas Indah to improve its decision making, reduce waste, and increase efficiency. By understanding the most cost activities, the company can optimize the use of resources and reduce waste. While there are challenges in implementing ABC, these can be overcome by developing a robust data collection system, identifying the correct cost drivers, and seeking expert advice.