Cost calculation techniques and activity-based costing: Application in a cigarette manufacturing factory

Accurate cost information has great importance in terms of guiding managers for the vital subjects for an enterprise such as determination of both operational and financial risks of enterprises together with profitability, planning, control, strategy determination and decision-making. In this context, choosing the most appropriate costing method for a business has been an important subject which has been discussed many times by accountants, managers and academicians from past to present. Today's manufacturing organizations have become much more complex than in previous years. Although production systems have changed to meet the changing needs of the market, many organizations have remained unchanged in terms of their internal systems, accounting systems and information systems. As a result, managers and accountants have expressed their concerns about their dissatisfaction with traditional cost systems and their suitability in the modern production environment. Activity-based costing has emerged as an alternative to traditional costing systems. In this study, costs in a cigarette manufacturing facility, have been analyzed seperately, applying volume based costing and activity based costing methods and profitibality analysis has been performed, taking into consideration of companies sales and marketing policies along with intended audience for each brand group. Outcomes showed differences in terms of cost, hence profitibality information between volume based costing and activity based costing. Based upon different outcomes for different costing methods, it is being presented that preference of costing method plays a key role on each strategic decision for the business such as profitibality, pricing, target audience, defining marketing policies.