This paper presents an analysis of existing costing system in a rubberised coir mattress company. After identifying inherent problems in the system an alternative costing model based on Activity Based Costing is developed. Actual cost data for a period of one month is used for cost allocation and arriving at unit cost of cost objects consumed by various products. Production cost of a particular model is obtained based on the actual usage of cost objects as per the specification for the model. Production cost of three selected models from different segments is calculated using the new model and compared with that of existing model. The new costing system revealed that production cost for the selected models are 18%, 19% and 34% lower than the existing cost accounted. A cumulative reduction of 3.07 Cr in annual production cost is accounted for the three models.
Keywords: Costing, Activity Based Costing (ABC), Production cost, Cost allocation