Impact of ABC information on product mix and costing decisions

The primary aim of this paper is to develop and demonstrate a mixed integer programming model that utilizes activity-based cost information to determine optimal product mix and product cost in a multi-product manufacturing environment. The model permits interesting insights to be gained into the evaluation of the 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 issue of how to determine the cost of idle capacity and attribute it to the different products. An example is presented to demonstrate the findings of the model, which the authors then compare with analogous results from a traditional linear programming-based approach. Extensions to the mixed integer programming model are also provided.<
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