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Activity-based costing, often known as ABC, is one of the well established techniques, that is used in the cost estimation of a product. In the competitive market environment, companies often resort to the ABC estimation technique to arrive at a precise estimate of their input costs, so that they can adopt an appropriate pricing strategy in the market. The cost estimation of a new product requires precise design and development cost estimate in addition to the manufacturing and overhead costs. In this paper, the ABC approach is used to arrive at a precise estimate for the newly design fuel tank of a rigid inflatable boat (RIB). The paper presents the well-defined methodology of ABC approach through proper identification and analysis of activities along with their drivers, cost centers and other relevant details in arriving at the precise cost estimate of the fuel tank.
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