An application of the activity-based costing for the management of project overheads to increase profit during the construction stage

Jaya, NM; Pathirage, CP; Sutrisna, M

Abstract

The traditional costing system was originally developed in England when industrial engineers and cost accountants applied a primary concept of cost accounting systems to minimise the risk of bankruptcy during times of recession. The conventional Bills of Quantities (BoQ) arbitrarily distributed average overheads to the real jobs or projects on a direct labour basis. There would seem to be an invisible cost-causal relationship between overheads and activities. Project overheads are indirect costs that are not necessarily defined in close relation to the activities. The Activity-Based Costing (ABC) system enables it to assign costs to every activity, then to jobs or projects. This paper aims to investigate an application of the ABC system for the management of project overheads to increase profit during construction operations and to develop a cost controlling concept, through a thorough review of literature and a critical discussion. The ABC system provides diverse cost drivers in assigning accurately the project overheads to every activity and demonstrates clear insights of cost cause-and-effect relationships to the jobs or project packages. The ABC system would, therefore, be implemented suitably to develop an Activity-Based Cost Controlling (ABCC) model for the management of project overheads, and as a cost controlling tool and technique to increase profit during the construction stage in the construction industry.

Citation

Jaya, N., Pathirage, C., & Sutrisna, M. (2010, June). An application of the activity-based costing for the management of project overheads to increase profit during the construction stage. Presented at SPARC 2010 Conference, Mary Seacole, the University of Salford, United Kingdom

• Presentation Conference Type: Other
• Conference Name: SPARC 2010 Conference
• Conference Location: Mary Seacole, the University of Salford, United Kingdom
• Start Date: Jun 10, 2010
• End Date: Jun 11, 2010
• Deposit Date: Dec 14, 2010
• Keywords: activity-based costing, project overheads, cost controlling, profit, construction stage.
• Additional Information: Event Type : Conference