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Development of Activity Based Costing Model

April 06, 2016 7077 Views


AkzoNobel Car Refinishes is a world leader in coatings for car repair and commercial vehicles.
The International Distribution Center (IDC) of AkzoNobel Car Refinishes is located on the site in Sassenheim.

The IDC is serving the global market. The volume split between EMEA (=Europe, Middle East and Africa) and the rest of the world is 75/25. Cost is allocated to the customers via an allocation process which uses an Activity Based Cost model to:

  • To determine the expected cost allocation based on the forecasted cost and volumes which determines the mark-up.
  • To allocate costs based on actual volumes.

The ABC model initially used assigned different costs to activities based on percentages.
The model was considered complex and there was a lack of trust in the accuracy of the model. Groenewout was requested to support the setup of a new ABC model.

A multi disciplinary team from Finance, Operations and a customer representative of EMEA was formed. The team analyzed and classified costs into direct and indirect. Both cost categories are being allocated to individual customers, by means of two different methods. Indirect cost are allocated yearly, based on the kilograms of the product mix each customer is expected to order.
Direct costs, firstly were linked to relevant activities and cost drivers. Secondly, a tariff per activity was calculated, based on forecasted volumes. To add flexibility in direct cost allocation, ranges of tariff validity were determined. Finally, extensive model validation proved that the model indeed generated reliable allocation results, as presented in standardized monthly reporting.


  • There is a better underpinned view and discussion concerning the actual influence able costs which the supplier (cost center) allocates to their customers.
  • The level of acceptance of the ABC model is very high due to the transparency (one set of data!) and the joined approach during the design of the model.
  • The final result is a management tool which can be used for much more the allocation of cost, like:
    • Providing internal and external transparency on actual cost and efficiency of the IDC process
    • Optimization of the Supply Chain in terms of expected unit cost
    • Internal process and efficiency improvement of the warehouse
    • What-if analysis as starting point of a business case