IMPACT OF ABC INFORMATION ON PRODUCT MIX AND COSTING DECISIONS

Our primary aim in this paper is to develop and demonstrate a mixed in teger programming model that utilizes activity-based cost information to determine optimal product mix and product cost in a multi-product m anufacturing environment. The model permits interesting insights to be gained into the evaluation of marginal cost of products and marginal worth of resources for decision making involving product mix, product costing and capacity expansion/contraction. It also addresses the issu e of how to determine the cost of idle capacity and attribute it to th e different products. An example is presented to demonstrate the findi ngs of the model, which we then compare with analogous results from a traditional linear programming-based approach. Extensions to the mixed integer programming model are also provided.