A case study of activity-based costing in allocating rebar fabrication costs to projects

How to improve cost allocation for reinforced steel bar (rebar) is an ongoing topic of debate among construction manufacturers and contractors. Traditionally, many fabrication shops have used a single overhead-cost pool accounting system. However, a new costing method, activity-based costing (ABC), may provide more advantages than the traditional system. In this case study, a single overhead-cost pool system is compared with the ABC method to demonstrate how ABC improves cost allocation and provides other benefits. The case study findings indicate that ABC provides such benefits as (1) accurate manufacturing costs; (2) cost information on processes; and (3) information on cost drivers. This paper also bridges the construction and cost accounting literature. Our study contributes to the construction management literature by offering a different cost allocation method to refine fabrication costs assigned to projects. The findings are expected to serve as a reference for industry professionals who recognize the shortcomings of a traditional single overhead-cost pool system and are in need of a more accurate costing system.