Implications of activity-based costing/management for decision-making in order management

Abstract:Organizations have been tried to change and adapt their business environment. Various management accounting techniques have been introduced in order to enhance this adaptation in fundamental areas of the organization. As an alternative costing system to traditional volume-based costing, Activity-Based Costing (ABC) has been one of these initiatives. Activity-based costing and management is an accounting and management approach for determining accurate costs especially the overhead costs. Activity-Based Costing/Management (ABC/M) can overcome some of the limitations of traditional cost accounting for decision-making in order management. The combination of ABC in orders management decision-making models of can improve the quality of decision. Most of order management decision support models only consider material flow and capacity constraints and don’t consider the profitability factor. This paper proposes multi objective mixed integer programming model to could take into account profitability for managing order decisions effectively, subject to capacity constraints by using ABC. Illustrative example shows that the proposed model satisfies a favorite quantity of orders completely and accepts a selective number of orders partially by increasing the profitability and minimizing residual capacity simultaneously.