A-PDF MERGER DEMO

T.C.
MARMARA UNIVERSITY
INSTITUTE FOR GRADUATE STUDIES IN
PURE AND APPLIED SCIENCES

ERP APPROACH
FOR A PAINT PRODUCTION COMPANY :
AN ACTIVITY BASED COSTING (ABC)
CASE STUDY

Barış ERGÜN
(Engineering Management)
(BS In Computer Engineering)

THESIS
FOR THE DEGREE OF MASTER OF SCIENCE
ENGINEERING MANAGEMENT PROGRAMME

SUPERVISOR
Asst.Prof.Dr. Özalp VAYVAY
Assoc.Prof.Dr. Figen ÖKER

İSTANBUL 2005
 T.C.
MARMARA UNIVERSITY
INSTITUTE FOR GRADUATE STUDIES IN
PURE AND APPLIED SCIENCES

ERP APPROACH
FOR A PAINT PRODUCTION COMPANY :
AN ACTIVITY BASED COSTING (ABC)
CASE STUDY

Barış ERGÜN
(Engineering Management)
(BS In Computer Engineering)
(141102420020199)

THESIS
FOR THE DEGREE OF MASTER OF SCIENCE
ENGINEERING MANAGEMENT PROGRAMME

SUPERVISOR
Asst.Prof.Dr. Özalp VAYVAY
Assoc.Prof.Dr. Figen ÖKER

İSTANBUL 2005
ACKNOWLEDGEMENT

I would like to thank to my thesis supervisors Asst. Prof. Dr. Özalp Vayvay and
Assoc. Prof. Dr. Figen Öker for their help and guidance through this thesis study. I
am also thankful to my family, my friends and my colleagues for their supports
during the thesis study.

July, 2005 Barış ERGÜN

I
CONTENT

PAGE

ACKNOWLEDGEMENT........................................................................ I

CONTENT................................................................................................. II

ÖZET......................................................................................................... VI

ABSTRACT............................................................................................... VII

CLAIM OF ORIGINALITY................................................................... VIII

ABBREVIATIONS................................................................................... IX

LIST OF FIGURES.................................................................................. X

LIST OF TABLES………………………………………………............ XI

PART I. INTRODUCTION AND OBJECTIVES………............... 1

I.1. DESCRIPTION OF THE STUDY.................................................................. 1

I.2. INTRODUCTION............................................................................................ 1
I.3. OBJECTIVES................................................................................................... 3

PART II. LITERATURE REVIEW………………………............... 5

II.1. TRADITIONAL COST ACCOUNTING SYSTEMS……………….......... 5

II.1.1. Cost Accounting Systems…………………………………………...... 5
II.1.2. Need for a Cost Accounting System……………………………......... 6
II.1.3. Cost and Cost Types…………………………………………….......... 6
II.1.3.1. Direct Costs…………………………………………………........... 7
II.1.3.2. Indirect Costs………………………………………………............. 8
II.1.4. Cost Accounting Methods………………………………………......... 9
II.1.4.1. Job Order Costing………………………………………………...... 9
II.1.4.2. Process Costing…………………………………………………...... 9
II.1.5. Cost Allocation………………………………………………………... 10

II
 II.1.6. Insufficiency of the Traditional Cost Accounting Systems……........ 11
II.1.6.1. Use of Direct Labor as Allocation Base……………………............ 12
II.1.6.2. Necessity to Reduce the Stocks……………………………............. 13
II.1.6.3. Product Centers Taking Place of Production Centers………............ 14
II.1.6.4. Increase in the Fixed Production Costs…………………….............. 14
II.1.6.5. Incapability of the Functionalities………………………….............. 15
II.2. NEW MANUFACTURING ENVIRONMENTS
AND THEIR IMPACTS…………………………………………………...... 16
II.2.1. Factors that Influence Manufacturing Environments…………....... 16
II.2.2. Impacts of Technological Developments on Costs………………...... 16
II.2.2.1. Decrease in the Direct Cost Shares…………………………............ 17
II.2.2.2. Performance Measurement…………………………………............ 17
II.2.2.3. Competitive Strategy………………………………………............. 18
II.2.2.4. Just-in-Time Production Costing……………………………........... 19
II.2.3. Enterprise Resource Planning (ERP) Systems…………………........ 20
II.2.3.1. Material Requirements Planning (MRP) Overview…………........... 24
II.2.3.2. MRP Inputs…………………………………………………............ 26
II.2.3.2.1. Bill of Materials (BOM)………………………………............ 26
II.2.3.2.2. Master Production Scheduling (MPS)……………………....... 27
II.2.3.2.3. Inventory Records File…………………………………........... 27
II.2.3.3. Data Files……………………………………………………........... 28
II.2.3.4. Inventory Balances…………………………………………............. 29
II.2.3.5. Lot Sizes……………………………………………………............. 30
II.2.3.5.1. Lot-for-Lot………………………………………………......... 30
II.2.3.5.2. Economic Order Quantity (EOQ)……………………….......... 31
II.2.3.6. Safety Stock Levels…………………………………………............ 32
II.2.3.7. Lead Times…………………………………………………....... 33
II.3. ACTIVITY BASED COSTING SYSTEMS……………………………...... 34
II.3.1. Introduction to ABC………………………………………………........ 34
II.3.2. Evolution of ABC…………………………………………………......... 36
II.3.3. Why ABC?................................................................................................ 37
II.3.4. Differences of ABC from Traditional Cost Accounting…………....... 39
II.3.5. ABC Model…………………………………………………………....... 41
II.3.5.1. Cost Assignment View………………………………………........... 41
II.3.5.2. Process View……………………………………………….............. 42
II.3.6. ABC Building Blocks………………………………………………....... 43
II.3.6.1. Resources……………………………………………………........... 43
II.3.6.2. Activities……………………………………………………............ 44
II.3.6.3. Resource Drivers……………………………………………............ 44
II.3.6.4. Activity Centers……………………………………………............. 44
II.3.6.5. Cost Objects…………………………………………………........... 45
II.3.6.6. Activity Drivers……………………………………………............. 45
II.3.7. ABC Methodology…………………………………………………....... 45
II.3.7.1. Stage-1: Cost Allocation to the Activities………………….............. 46

III
 II.3.7.1.1. Activity Analysis………………………………………............ 46
II.3.7.1.2. Activity Cost Calculation………………………………........... 48
II.3.7.2. Stage-2: Cost Allocation to the Cost Objects………………............. 51
II.3.8. An ABC Example…………………………………………………......... 52
II.3.9. Role of ERP in Accounting and ABC Integration………………........ 54

PART III. CASE STUDY 58

III.1. INTRODUCTION…………………………………………………............. 58
III.2. GENERAL INFORMATION ABOUT THE COMPANY………............ 59
III.2.1. History………………………………………………………………..... 59
III.2.2. Activity Field and Organization…………………………………....... 60
III.2.3. Company Infrastructure…………………………………………....... 62
III.2.4. Basic Company Processes…………………………………………..... 62
III.2.4.1. Customer Related Processes…………………………………......... 62
III.2.4.2. Design and Development Processes…………………………......... 63
III.2.4.3. Purchasing Processes………………………………………............ 64
III.2.4.4. Production Process…………………………………………............ 65
III.2.4.4.1. General………………………………………………….......... 65
III.2.4.4.2. Product Identification and Traceability…………………........ 65
III.2.4.4.3. Handling, Storage, Packaging, Preservation an Delivery......... 66
III.2.4.4.4. Inspection and Test Status………………………………........ 66
III.2.4.4.5. Inspection and Testing………………………………….......... 67
III.2.5. Product Variations…………………………………………………..... 67
III.2.6. IT Infrastructure…………………………………………………........ 68
III.3. ERP APPROACH FOR PRODUCTION………………………................ 69
III.3.1. Part Coding…………………………………………………………..... 69
III.3.2. BOM Data…………………………………………………………....... 71
III.3.3. Operation Data……………………………………………………....... 74
III.3.4. Master Production Scheduling (MPS) …………………………….... 75
III.3.5. Lot Sizes……………………………………………………………...... 76
III.3.6. Safety Stock Level…………………………………………………...... 77
III.3.7. Lead Times…………………………………………………………...... 78
III.3.7.1. Purchasing Lead Time……………………………………….......... 78
III.3.7.2. Manufacturing Lead Time…………………………………............ 79
III.3.8. MRP Process………………………………………………………....... 80
III.4. TRADITIONAL COST ACCOUNTING SYSTEM…………….............. 83
III.4.1. Existing Cost Accounting System…………......…………………....... 83
III.4.2. Calculation of Product Costs with ERP Data……………………...... 83
III.5. IMPLEMENTATION OF ABC SYSTEM……………………….............. 85
III.5.1. Determination of the Activities and the Cost Drivers……………..... 87
III.5.1.1. Stocking and Transport………………………………………......... 88
III.5.1.2. Production Plant Activities…………………………………........... 89
III.5.1.3. Quality Control………………………………………………......... 90

IV
 III.5.1.4. Establishment Care and Repair Expenses…………………............. 91
III.5.1.5. Machinery Care and Repair Expenses……………………….......... 92
III.5.1.6. Production Plant Management……………………………….......... 92
III.5.1.7. Purchasing…………………………………………………............. 94
III.5.1.8. Marketing and Sales…………………………………………......... 95
III.5.1.9. General Management and Administration…………………............ 96
III.5.2. Determination and Allocation of the Cost Types to the Activities.... 97
III.5.2.1. Accounting Information System……………………………...... 97
III.5.2.2. Primary Cost Allocation……………………………………....... 99
III.5.3. Allocating Activity Costs to the Product Groups………………........ 101
III.6. COMPARISON AND EVALUATION OF THE RESULTS:
ABC VS. TRADITIONAL SYSTEM.......................................................... 102

PART IV. CONCLUSION.................................................................... 105

REFERENCES.......................................................................................... 107

APPENDICES........................................................................................... 110

CURRICULUM VITAE

V
ÖZET

BİR BOYA ÜRETİM FİRMASI İÇİN ERP YAKLAŞIMI:

FAALİYET TABANLI MALİYETLENDİRME (FTM) VAKA
ÇALIŞMASI

Müşteri taleplerinin çeşitlenmesi ve buna bağlı olarak ürün hayat devirlerinin

kısalması, müşteri odaklı yönetim yaklaşımlarının şekillenmesinde en önemli etken
olmuştur. Üretim sürecini hızlandırarak bu talepleri karşılamak ve küresel rekabet
şartlarına uyum sağlayabilmek için firmalar, üretim sistemlerini yeniden gözden
geçirmek ve teknolojik gelişmeleri bu sistemlere uygulamak zorunda kalmışlardır.

Üretim sistemlerindeki bu köklü değişiklikler maliyet yönetimi konusundaki

problemleri de beraberinde getirmiştir. Geleneksel maliyet sistemleri, yeni üretim
ortamlarını destekleyecek bilgi desteğini sunmak konusunda yetersiz kalmışlardır.
Bunun ötesinde otomasyonun üretim sistemlerinde giderek daha fazla yer bulması direkt
işgücüne olan önemi azaltmış; buna bağlı olarak değişen maliyet yapısı, ürün
maliyetlendirmesi konusundaki aksaklıkları gündeme getirmiştir. Bu ve benzeri sebepler
maliyet yönetimi konusunda yeni yaklaşımlar geliştirilmesini kaçınılmaz kılmıştır.

Tez çalışmasının birinci kısmında yeni üretim ortamları ve yönetim yaklaşımları,

maliyet sistemleri üzerindeki etkileriyle birlikte incelenerek tez çalışmasının perspektifi
belirlenmiştir. Bu çerçevede, üretim, maliyet muhasebesi ve daha bir çok uygulamayı
kendi çatısı altında toplayan kurumsal kaynak planlama sistemleri ve maliyet
muhasebesinde belirtilen sorunlara çözüm olarak ortaya çıkan faaliyet tabanlı
maliyetlendirme yaklaşımı incelenmiştir.

İkinci kısımda boya üretim sektörünün önde gelen kuruluşlarından birinde

yürütülmekte olan kurumsal kaynak planlama sisteminin belli başlı üretim ve planlama
altyapısı irdelenmiş, ardından muhasebe verileriden faydalanılarak faaliyet tabanlı
maliyetlendirme metodolojisi bu kuruluşa uygulanmıştır. Elde edilen faaliyet tabanlı
ürün maliyetlerinin, firmanın stratejik ve operasyonel karar sürecine destek vereceği
öngörülmektedir.

VI
ABSTRACT

ERP APPROACH FOR A PAINT PRODUCTION COMPANY:

AN ACTIVITY BASED COSTING (ABC) CASE STUDY

Increased variations in customer demands and related decrease of the product

life cycles have been the most important factor for the customer oriented
management approaches to be shaped. The companies had to glance over their
production systems and apply the technological improvements into these systems in
order to meet the customer demands by accelerating the production process and
adapting to the conditions of the global competition.

Problems about the cost management issue have come together with the radical
changes in the production systems. Traditional cost accounting systems have been
insufficient to meet the information need for providing the new production
environments. Furthermore, increased use of the automation in the production
systems has decreased the importance of the direct labor and by the way the
changing cost structure has made the problems in product costing a current topic.
These and similar reasons made it unavoidable to bring new approaches for cost
management.

In the first part of the thesis study, the perspective of the thesis study is
determined by inspecting the new production environments and management
approaches together with their influence on the costing systems. In this context, the
enterprise resource planning systems that unites many systems like cost accounting
and many other; and also the activity based costing approach that is developed as a
solution to the problems explained for the cost accounting are investigated.

In the second part, outstanding production and planning infrastructure of an

enterprise resource planning system that is used in one of the leader companies of
paint production sector are researched, and after that the activity based costing
methodology is applied to this company with the use of the accounting data.
As a corollary, calculated activity based product costs are assumed to support
the strategic and operational decision process of the firm.

VII
CLAIM FOR ORIGINALITY

ERP APPROACH FOR A PAINT PRODUCTION COMPANY :

AN ACTIVITY BASED COSTING (ABC) CASE STUDY

Activity based costing is a relatively new cost accounting approach for the
companies in manufacturing industry and it is expecting interest from enterprise
managers. This thesis study constitutes a model application including the research
and implementation of an activity based costing system in a leading paint production
company of Turkish chemical industry. The company in question has been using
traditional cost accounting approaches since this unique activity based product
costing methodology was developed and presented for management review. The
activity based product costs calculated with the new costing methodology are
interpreted to give more accurate cost information and proposed to be assigned to the
sales prices in order to eliminate the errors in costing and price estimation studies.
Result of the study is expected to improve the accuracy of the product costs
calculated for the company and motivate the company’s strategic management for
the use of the activity based management approach. This academic research and the
case study are projected to offer a solution for the current discussions on the cost
accounting topic.

July, 2005 Asst.Prof.Dr. Özalp Vayvay Barış Ergün

VIII
ABBREVIATIONS

ABC : Activity Based Costing

ERP : Enterprise Resource Planning
IT : Information Technologies
JIT : Just-in-Time
EDI : Electronic Data Interchange
MRP : Material Requirements Planning
MRPII : Manufacturing Resource Planning
BOM : Bill of Materials
CRP : Capacity Requirement Planning
RDBMS : Relational Database Management System
PC : Personal Computer
Y2K : Year 2000
MPS : Master Production Scheduling
EOQ : Economic Order Quantity
ROI : Return on Investment
SS : Security Stock

IX
LIST OF FIGURES

PAGE
Figure II.1 General Production Costs................................................................... 8
Figure II.2 Three Types of Cost Allocation.......................................................... 11
Figure II.3 Traditional Product Costing Model.................................................... 13
Figure II.4 Break-Even Point Graph..................................................................... 15
Figure II.5 Main Principles of Activity Based Costing........................................ 35
Figure II.6 Traditional Cost Allocation vs. Activity Based Costing (ABC)........ 41
Figure II.7 The Interdependency of Activities in a Process................................. 42
Figure II.8 ABC Building Blocks................................................ ........................ 44
Figure II.9 Activity Based Costing System in More Detail.................................. 46
Figure II.10 Anatomy of an Enterprise System...................................................... 55
Figure II.11 Structures of ABC and ERP Compared with Each Other.................. 56
Figure III.1 Company Part Coding System............................................................ 70
Figure III.2 Production Process Analysis and Process Elements........................... 71
Figure III.3 Sample Bill of Materials (BOM) ....................................................... 73
Figure III.4 Sample for a Multi-level Intended BOM Structure Analysis............. 74
Figure III.5 Sample Operations List for Paint Production..................................... 75
Figure III.6 Lead Time Data Source for Purchased Material................................ 79
Figure III.7 Stage-1 Cost Allocation...................................................................... 100
Figure III.8 Applied ABC Model and the ABC Phases......................................... 103

X
LIST OF TABLES

PAGE

Table II.1 Part Numbering Rules........................................................................... 28

Table II.2 Traceable Cost Types and Their Measures............................................ 51
Table II.3 Product Information for ABC System................................................... 52
Table II.4 Activity Cost Pools and Cost Drivers.................................................... 53
Table II.5 Calculation of the Unit ABC Costs....................................................... 53
Table III.1 Determined Activities............................................................................ 87
Table III.2 General Ledger Levels........................................................................... 97
Table III.3 Expense Types....................................................................................... 98
Table III.4 Expense Categories................................................................................ 100
Table III.5 Sample Section from the Table for the Allocation Bases...................... 101
Table III.6 Sample Section from the Table for the Activity Distribution Values... 102
Table III.7 Sample Section from the Table for the Calculated Activity Costs........ 102
Table III.8 Sample Section from the Table for the Evaluation of the ABC and
Traditional Product Costs...................................................................... 103
Table III.9 Product Groups that Show the Greatest Cost Differences..................... 104

XI
PART I

INTRODUCTION AND OBJECTIVES

I.1. DESCRIPTION OF THE STUDY

This research investigates the use of the activity based costing (ABC)
methodology implemented into an enterprise resource planning (ERP) system used
for a paint production company from Turkish chemical sector. Based on the case
study conducted in this company, the thesis study attempts to provide more accurate
product costs when compared with the traditional cost accounting systems.

I.2. INTRODUCTION

The emerging developments in the manufacturing technologies, more

automated production processes, and higher IT facilities for information feedback
needed for production and resource usage planning leads to less importance for direct
labor and human work force. The companies try to automate their production
processes in order to reduce the human errors and maximize the output. It’s an
undeniable truth that automation of the production operations will increase in the
new century and reduce the need for human interaction and work force. Also the
developments in the information technologies have given the advantage to faster
access the information and the companies are able to produce more product types
with higher quality and higher amounts within less production times. Information
technologies are more integrated with the production systems and production is

1
performed with computer aid. These and many other factors are the way to increase
the market shares and handle the international and market competencies for the
manufacturing companies.

Computer aided production technologies and more automated production

functions have many affects on product costs and cost variations. The outstanding
affects of these changes on the costing systems could be listed as follows:

• The share of the direct labor costs have decreased in the overall cost
constitutions
• The automation and design changes in the production plants have increased
the need to invest more on the constant investments like owning cost of the
machinery, care and attention and amortization costs. More of these
investments caused potential costing errors when using volume based cost
distribution over the products.
• New information and computing technologies and systems have changed
the processes and functions of the production companies in a great deal. So
cost items and types for performing these processes have evolved.
• Emerging developments in the production and management organizations,
more integrated and functional supply chain systems and web integrations
have increased the market competencies and changed the business
management and sales strategies. Those transformations of the business
efforts have changed the way we pay for.

Unfortunately, current cost accounting systems, namely the traditional systems

lack the sufficiency to meet the changing information demands of the new
production and management environments that the companies are due to provide for
keeping themselves in the new competitive structure of the industry. As the markets
are more competitive, the cost of making incorrect decisions and erroneous product
costing studies have increased, dragging the enterprises to an unknown business
future.

2
 In 1980s, activity accounting and activity based costing topics have become a
current issue for the enterprise systems and the managers. This new approach was an
attempt proposing more accurate product costs, higher interaction with performance
analysis, better decomposition of profitability and efficiency for the cost objectives,
improved information systems for strategic decision support and better reporting
systems.

The first part of this thesis study involves the research for the traditional cost
accounting systems and the current costing approaches. The insufficiencies of these
systems are tried to be emphasized. The next part presents the new technological
developments, enterprise information and production systems together with their
impacts on accounting systems. Then the activity based costing (ABC) subject is
considered deeply. The evolution of ABC, the ABC model and methodology are
explained in order to reveal its superiorities over the traditional cost accounting
philosophies.

The second part of the thesis study deals with a model case study for
implementing an activity based costing methodology into a live accounting system
within an enterprise resource planning (ERP) environment. The basic elements and
modules of the company ERP system, supporting the production and accounting
modules are tried to be explained. Then the activity based product costing
methodology is applied and ABC product costs are maintained from the study in
order to be compared with the traditional system costs and evaluating the efficiency
of the ABC approach for the company’s costing infrastructure.

I.3. OBJECTIVES

The aim of this thesis study is to answer these questions:

• What are the impacts of the technological developments of the production

and management systems on the current cost accounting systems?
• Why do companies need to change their cost accounting algorithms?

3
 • What are the basic elements of today’s enterprise production planning and
control systems?
• What the ABC approach propose for cost accounting?
• How can the businesses apply the ABC approach to their systems?

In the light of these questions this thesis study aims to prove the applicability
and advantages of the activity based costing methodology with a research and model
study in a Turkish manufacturing company. With this study it is also aimed to live up
the activity based product costs to be used in the costing and pricing strategies of the
company and spread the activity based management philosophy to the overall
management decisions.

4
PART II

LITERATURE REVIEW

II.1. Traditional Cost Accounting Systems

II.1.1. Cost Accounting Systems

In any phase or instant of the enterprise business life, the companies of every
scale face with the need of an accounting system that will give the ongoing
information of the enterprise for the investors, lenders, income taxing authorities.

“Cost accounting systems are the methods and techniques used by enterprises
to track resources consumed in creating and delivering products and services to
customers.” [30]

The aim of a standard costing system is to build up a link between the costs of
the processes and functions of an enterprise and the products or services that this
enterprise creates. The information gained from such a system is a clue to assess the
efficiency of the enterprise in using or consuming the resources. The managers get
the possibility to make decisions to make the company’s best to provide the products
or services. [30]

5
II.1.2. Need for a Cost Accounting System

A cost accounting system is due to reply the information need of specific

individuals, functions or organizations:

• The recorded information within a cost accounting system is used by many

functions and employees of the enterprise. The employees of a company need
to access some continuous information set of accounting transactions in order
to carry on their resource and finance related enterprise operations. All the
operations carried on within a cost accounting system are summarized up to
the income statement and balance sheets in form of the inventory hold, cost
of goods sold and other indirect costs of the accounting period.
• The informational feedback is used by the executive managers or presented to
external relatives such as investors, creditors, official foundations and
organizations. The managers highly need this accounting information for
their middle and long term executive decision processes, employee
performance assessments and investment strategies. For a manufacturing
company the real cost of manufacturing a single product item or a batch of
production helps the managers to build the cost allocation plans. Such a cost
accounting system should precisely distinguish the direct and indirect
overhead costs of the overall business cycle.
• External foundations linked with the government request detailed reports and
transaction lists of the accounting system either annually or for specific
accounting periods. A reliable accounting system should also enable to get
precise reports of the system. The cost accounting studies are performed with
this system information under the legal circumstances and restrictions stated
by some official foundations.

II.1.3. Cost and Cost Types

Cost can be defined as the financial expenditures made for achieving a business
goal. Different business goals bring different costs into account and the evaluation of
these costs varies according to the production or service phase for which the cost

6
occurs. In the production sector it is possible to divide main production life cycle
costs into raw material costs, labor costs and the general production costs. So the cost
definition for the production sector can be extended to the total costs of the materials
and services consumed for producing company goods. These costs can be divided
into two as direct and indirect costs according to the usage in the production, relation
with the production volumes and allocation to the finished products.

Within a cost accounting system the production costs could either be related
with one or more production units, cost centers or sales centers. If this relation can be
satisfied without the use of an allocation base, or the cost accounting system presents
a direct way of allocating the costs, these costs could be named as direct costs.
Indirect costs are not related to a single product or production and the allocation of
the indirect costs needs an allocation base.

Any change in the production volumes is either directly proportional to the

costs or does not affect some cost items. The costs that change when the production
volumes change are called dependent or variable costs. The other costs which are not
dependent on the production volumes are known as the fixed costs.

II.1.3.1. Direct Costs

Direct raw material costs are generally the biggest part of the overall
production costs and they are the total cost of the purchased raw materials that are
used in the basic production operations. The usage quantities of these materials are
specific to the product and requirement quantities of these materials are able to be
determined in the basis of the planning operations.

Direct labor costs are costs that arise from the payments to the employees who
work in the production operations. These labor costs that can be related with every
product can be calculated in the means of the finished products, production cost
centers or distinct production orders. The direct labor costs of a product is divided
into the production operations performed for the production of that finished item and
they are followed by the company cost accounting system.

7
II.1.3.2. Indirect Costs

All the materials consumed out of the standard production operations could be
defined as the indirect materials and the purchase of these materials makes up the
indirect material costs. These secondary material costs are also hard to be related
with every distinct product. The indirect materials are not always necessary to be
consumed for the production phases but also the material needs for the machine
equipments, establishment and the company staff and these costs are called as the
business materials.

Indirect labor costs includes the costs of assistant production operations and the
payments of the production management activities made to the production planning
and management staff like the production manager, production chief and job floor
chief. It’s is again hard to separate the cost ratio that each finished product get from
the indirect labor costs.

General production costs can be defined as the total of the costs that cannot be
directly allocated to the finished products. Indirect material and labor costs and other
production related costs make up this portion of the expenditures. Amortization
costs, subcontract costs, energy consumption costs such as water, electricity, fuel are
outstanding cost items for the general production costs. With the exception of some
businesses, in most of the production companies these cost items are not allocated to
finished products.

Figure II.1 General Production Costs

8
II.1.4. Cost Accounting Methods

The point that draws the method of the cost analysis is the manufacturing
structure of the company and the technical specifications of the manufacturing.
Production amounts of the goods vary according to the customer demands. A
manufacturing company either produces customer-specific units with production
projects assigned for each product order or perform mass production with large
amounts of specific product items and product groups. In both manufacturing types,
the company has to separate the resource usage and costs of each manufacturing
process or job. Two common cost accounting method used by the manufacturing
companies are the job order costing and the process costing.

II.1.4.1. Job Order Costing

In this cost accounting system costing is performed for each distinct job or
batch. The job cost sheet is the deliverable for the job order costing and includes the
accumulated manufacturing costs per job. For each phase of the production direct
materials used and direct labor worked are expressed with their costs and the
manufacturing overhead costs are added to these direct costs. The unique
characteristics of the project based manufacturing types makes it necessary to
evaluate the cost objects and amounts in the jobs basis and record them all together
in the cost accounting system. It is also called the specific order costing.

II.1.4.2. Process Costing

Process costing is based on the continuous operation form of manufacturing

which depends on a homogeneous and continuous sequence of manufacturing
operations. The unit costs is a process costing system may be calculated as the
division of the total costs of an accounting period to the total number of units
produced in that accounting period but some exceptions are applied to this procedure.
The normal losses of materials during the manufacturing processes should be
reflected to the product cost and also the unfinished products which can be evaluated

9
as work-in-process materials should be taken into account for calculating the overall
costs for the related period. [20]

II.1.5. Cost Allocation

Grouping costs within an enterprise is the way to analyze the performance and
financial situation of different functions and branches. Possibly the costs occur in
many different ways in an organization. Planned expenditures are easy to categorize
according to their related business functions, so they are the part of the planned costs
of predefined cost objectives. But the business cycle makes it necessary to make
clear definitions for cost objectives and make them able to include every distinct cost
type.

Cost allocation deals with defining these cost objectives, such as departments,
divisions or the final products of the business and correspond all the cost items with
these cost objectives by tracing these cost items to the cost objectives. Therefore cost
allocation takes place after cost accumulation and accumulated costs are categorized
into cost pools of related units. The cost allocation-base, namely the cost driver
provides this linkage between the cost and the cost objectives. The cost items are
then collected in related cost pools assigned for each cost objective through a single
cost driver.

The cost allocation could be made in three different types. The joint costs that
are related more than one business unit are allocated to the responsibility centers
through cost drivers. The second type of allocation is the allocation from one
responsibility center to another. This reallocation is necessary when the units are
interrelated with each other by some product or service providing. The third type of
allocation is from one organizational unit of an enterprise to the product or output of
that organizational unit. At the end of this allocation cycle the incurred costs within
an organization is transferred to the product or service that this organization needs to
perform the production. The figure shows this allocation types. [18]

10
Figure II.2 Three Types of Cost Allocation [18]

II.1.6. Insufficiency of Traditional Cost Accounting

The word “traditional” for the accounting systems emphasizes that it primarily
meets the needs the investors, lenders, and income tax authorities. A traditional
accounting system is characterized by absorption costing. This assumption for the
accounting systems states that the manufactured items of a company absorb the costs
for direct materials used in the production, direct labor used to manufacture the item
and the overhead costs associated with that production. These overhead costs include
the depreciation of the production machinery, supervisory costs, energy consumption
costs, and other operating costs of the company. As the products are manufactured
they absorb these necessary costs. [4]

A successful and efficient cost accounting system firstly depends on the

reliability and correctness of the accounting information. The cost accounting
systems of our time should not be thought as just a reporting system for accounting
data but also a tool for strategic decision management. Important changes in the
challenging business environment and technology brought the necessity to evaluate

11
the cost accounting systems and redesign the accounting processes in order to better
costing the product or service. In this context the current cost accounting systems
named as traditional cost accounting systems show specific deficiencies and
disadvantages in meeting the needs of the new era for production sector.

When the production environment of the traditional cost accounting systems is

evaluated, we see that the main difference is in the production structure of the
traditional systems that are generally based on narrower product ranges. The
companies producing limited number of goods and product types to specific
customers within static markets were using seldom accounting and cost allocation
rules. When new production opportunities and variations have to be brought to the
current systems and number of the product variations has to be increased it was
observed that cost information due to the products was distorted. This is a big
handicap in getting accurate cost information for generating the decision base and
control leading from production to marketing. [13]

II.1.6.1. Use of direct labor as allocation base

The purpose of all cost allocation methods is to assign indirect costs to

individual products, customers, branches, or other cost objects as defined by the
organization. In this context, a reasonable allocation method should have the goal of
minimizing cost distortions and improving overall institutional performance through
more efficient use of common resources, namely the indirect costs. Traditional cost
allocation methods use allocation bases to distribute costs among products, such as
direct labor hours or total account balances of a specific financial product.

The accounting systems of many companies perform the cost allocation in the
base of the direct labor cost ratios as its use is simple and fast. But this allocation
does not give out accurate results since there could be high difference between the
products in the means of direct labor requirement.

Not only this difference creates the disadvantage for the direct labor based cost
allocation, but also the role of the direct labor has regressed a lot for the

12
manufacturing sector because high automation and technological developments
decreased the necessity and dependency of the production operations on direct labor
and human work force. Due to more detailed and healthier production planning,
larger batch sizes have caused fewer setups, less production scheduling, less stock
transactions and in relation with these less need for direct labor.

Therefore the accounting systems had to be directed to newer allocation keys

reflecting the production activities more realistically and allocation of the overhead
costs had to be purified from rubbish allocation selections. [13]

Figure II.3 Traditional Product Costing Model [30]

II.1.6.2. Necessity to reduce the stocks

The challenging environment of the production sector and greater risk of

investing the money on the stocks made it necessary to reduce the stock levels and
use optimal material and resource management approaches and tools that drive the
current systems to profit from the reduction of the stock costs. These new production
systems has to use an integrated accounting system beneath the operational level so
the accounting systems had to be reorganized according to new production systems.
The traditional accounting systems show this lack of integration with the new
production management philosophies and have to take the stock level costs into
account for a more efficient cost accounting.

13
II.1.6.3. Product Centers taking place of Production Centers

The functional grouping of the production lines that are used for multiple
product items and groups are abandoned in a great deal. The companies are
designing product specific production lines that give out large quantities of finished
products of a single type. These new product lines are being related with this single
unit types in each production cycle. Then many product cost centers have been
created that need more allocation bases.

II.1.6.4. Increase in the Fixed Production Costs

With the rapid development of the production technologies and automation,

fixed costs of the production have increased both resulting the corresponding
increase in the overall production costs. All the machinery, standard processes and
new production lines that come with the automation of the shop floor and upkeep of
these systems have caused monthly or periodically installed payments and finance
load to the businesses. The value add, which equals to the difference between the
prices and the average variable production cost, is insufficient to meet the increased
fixed costs. The companies produce more in order to meet these fixed costs which
are charged onto each produced item. Then the break-even point for the companies
saw a related delay. “The break-even point is defined as the point where sales or
revenues equal expenses. There is no profit made or loss incurred at the break-even
point. This figure is important for anyone that manages a business since the break-
even point is the lower limit of profit when setting prices and determining margins.”
[20]. This evident cost shifts within the products have decreased the importance to
break-even point and value add concepts so they have lost their importance in the
cost accounting systems.

14
Figure II.4 Break-Even Point Graph [21]

II.1.6.5. Incapability of the functionalities

Process control, stock valuation and product cost accounting are the three basic
functionality of a cost accounting system. Today it’s impossible to perform all these
three functions with a single cost accounting system. Three different and integrated
systems for these three purposes and separating the operation level of these systems
eliminate possible clashes and inaccuracies in the reporting services of the cost
accounting systems. Final product costs taking place in the financial reports gained
by a direct labor based cost allocation system causes possible errors in the product
cost information and performance valuation processes.

As the main goal of the managers is to take the appropriate actions to reduce
the costs and improve the productivity, the financial reports of the traditional cost
accounting systems tell little. As the timely and true cost information is essential to
supply immediate appreciation for the current position of the business, efficient cost
information reports should direct the managers. Delayed system information does not
encourage the managers for making dynamic business decisions. Also the distorted

15
and impersonalized accounting information causes a data pollution and the manager
is unable to get the needed information. [18]

II.2. New Manufacturing Environments and Their Impacts

II.2.1. Factors that Influence Manufacturing Environments

In recent years, many remarkable changes have taken place in the

manufacturing industry, triggered by the intensive global and market competition. In
this highly competitive business environment manufacturing markets switched from
producer orientation to customer orientation and made it necessary to adapt this
focus change necessary for the companies in order to remain competitive in the
market [41]. This approach is especially established by the new manufacturing
environments developed after 1980ies.

As a result of this constitution, new process technologies, inventory control and

material usage systems, production, engineering and design operations have been
developed, driven by the related information and computer systems progress. The
traditional cost accounting systems are seen necessary to leave the former techniques
and renew themselves with these production and management opportunities. The
companies have stated the formula of their success with the sum of getting more
accurate data within shorter time. In order to handle the global competition they had
to reevaluate their quality and productivity perspectives and create privileges in order
to lead their markets.

II.2.2. Impacts of Technological Developments on Costs

New manufacturing environments that are shaped with new management

approaches show definite differences with the traditional production systems. Studies
in the engineering, design costs, amortizations and allocation bases try to overcome
the possible questions that the traditional cost accounting systems are faced with.
Also faster, more flexible and quality focused information systems have made great

16
effects on the cost accounting systems. Basic impacts of the technological
developments can be listed as follows:

II.2.2.1. Decrease in the Direct Cost Shares

With the automation of the production plants, the direct cost shares in the
overall product costs have decreased. New studies in the cost distributions of the
products it’s observed that this ratio has been about 10% for today’s industries. This
decrease correspond a definite increase in the general production costs. The direct
investments on automation could be explained as the reason of the increase in the
general product costs. The new technologies have made the role of the direct labor
and the volume-based allocation methods invalid, so the allocation of the general
production costs has become useless and furthermore harmful.

The decrease in the direct labor is also main factor of the decrease in the
direct costs. The manufacturers are face to face with serious accumulation in the
indirect costs. This situation made it necessary for the managers to give more
importance to the planning, reporting and control of the general production costs.

II.2.2.2. Performance Measurement

There are several reasons for the need and developing new systems and
approaches for cost accounting, such as insufficiency of the information that the
traditional cost systems provide, inaccurate product costing systems, not having
encouraging cost accounting systems for improvements and predominant overhead
costs. The traditional cost accounting systems does not give accurate reports for the
business activity information that will give a sight for improving the performance.
[14]

“The cost profile of manufacturing has changed over the last thirty years” [31]

An example is the inventory management systems that has an increasing cost

and complexity and needs to have developing cost and performance measures.

17
Improvements on such systems should focus on the work that makes up the value
creating activities for a company. In today’s industry there is a definite need for the
costing systems based on performance. In this context,

“Strategic performance measurement defines the focus and scope of

management accounting. Specifically the requirement is that management
accounting practice recognizes and reflects choices made in organizations for
management accounting to be relevant.” [3]

II.2.2.3. Competitive Strategy

With the emerging developments in the communication and information

technologies, the gap between the markets has been annihilated. The world industry
is turning from a scattered structure to a global formation. In order to handle the
competition in this new perspective, new manufacturing and management
opportunities have become a must for the companies to adapt to their business
strategies. Then the way to achieve success in the new global competition is
determined with reducing their costs, maximizing their productivity and quality
standards. Only the businesses that build the appropriate competitive strategies could
find the chance to get a place in the global market. These competitive strategies also
have to suit the customer expectations for gaining reliable and innovative products at
the right time and at the right prices.

In order to continue the operations successfully in the competitive strategy,

the companies have to apply at least one of these main strategies:

• Cost Leadership: Minimized costs and consequently minimized sale

prices gain competitive superiority and the conditions to fulfill the company
mission statements.
• Create Differences: The difference for a company can be revealed with the
quality and technology advantages provided to the customers in the means of
finished company products. Especially the time based competition is one of
the most important characteristics of global competition that drives the

18
 manufacturing companies in order to create differences within the company’s
internal operative life. Reducing customer, manufacturing, purchasing lead
times are the common elements of this approach. [31] These and other several
differences could give more chance to the companies in adjusting their sale
prices.
• Focusing: The business strategies could be localized on a single or a set
of customer, product, operational region or branch. This focusing could help
the new investment and business studies of the companies in reaching new
missions and sale markets but companies should have various technological
superiorities and value differences in order to handle these focused points.

II.2.2.4. Just-in-Time Production Costing

One of the most discussed subjects in the new manufacturing philosophies of

the last ten years has become the Just-in-Time systems. It depends on the goal of
reducing the product, semi-product and raw material inventory levels to the
minimum possible values or to the zero level.

“JIT is an integrated set of activities designed to achieve high-volume

production using minimal inventories of raw-materials, work-in process and finished
goods. Just-in-Time is also based on the logic that nothing will be produced until it is
needed.” [7]

It can be said to include a process of production and shipment of the goods in

the right time and right quantities and helps preventing the waste of the materials.

JIT also helps the simplification of the production activities which directly
affects the type of the cost accounting system adapted to the business. Some
transitions between the direct and indirect costs are possible in this manner, such as
the maintenance costs becoming a direct cost in JIT system. JIT also does not
encourage some resource consuming activities that take place in the traditional
manufacturing systems. Inspection of the incoming goods, inventory and material
handling costs can be eliminated or minimized to negligible levels.

19
 The success of the JIT systems depends on the balanced work load of the
repetitive structural elements of the manufacturing system that enables additional
production batches. Because it brings some extra responsibilities business and
production management via the detailed production plans. Thus the necessity for cost
reduction, planning and control aspects become more evident in JIT systems. [33]

II.2.3. Enterprise Resource Planning (ERP) Systems

Alternatives and combining MRP II has evolved to include order entry,

purchasing and direct interfaces with customers and suppliers such as electronic data
interchange (EDI) and advanced shipping notice. These advanced MRP systems that
tie customers and suppliers to MRP are now referred to as ERP systems.

A company may now use a fully integrated ERP system to:

• receive an order electronically from a customer,

• issue the necessary purchase orders to suppliers,
• change inventory levels,
• notify shippers on both ends of the transaction,
• update the MRP system,
• provide files for updating payables and receivables, and
• convert all transactions in the proper currency.

ERP cannot be thought as only an atomized manufacturing control system, but

in fact ERP is developed on a simple inventory control system. When the companies
needed a computerized system to control ERP is extended from the MRPII logic but
includes some other functions and specifications from MRP and MRPII. In that
means an ERP software system not only handles the management and control of the
manufacturing and inventory control operations, but also all the other business
processes within an organization in different application modules and brings them
together as a single integrated system.

20
 When we assess the ERP concept from the manufacturing side, the term
"integration" comes to question, which is the delimiter for the extent of the
coordination of different manufacturing processes and operations performed in a
company. An ERP system should handle these integration analysis and compatibility
issues, as a new technology or innovation is being adopted into the current system.

A core module of the ERP system, CRP aims the balancing of the workload
and the capacity in manufacturing. But MRP is the first step in order to understand
the manufacturing concept taken in MRPII and relatively ERP. MRP is a set of all
the procedures, rules, and records designed to translate a master production schedule
into time-phased net requirements, and the planned coverage of each requirement, for
each component inventory item needed to implement this schedule. MRP is
developed as a replacement for the classic order based systems and promises some
other production systems to be added into manufacturing facilities such as JIT
inventory method.

At the heart of the MRP system, there is the BOM process. With these BOM
data the output from MRP is an input to CRP. The important point is that the BOM
data must be accurate and up to date. Also the modifications on the BOM data may
cause inaccuracy in CRP when there is a time difference between data modification
and CRP. In order to improve the MRP system in manufacturing, lead time, safety
stock and MRP vs. subsystems links should be studied. MRPII is expanded from
MRP and became a standard as the application of information and manufacturing
technology for the last two decades. MRPII is also used as the manufacturing
planning part in most of the ERP systems.

ERP is a pack of all the best software applications for the branches of a firm.
The reason for ERP for being selected as a worldwide solution in manufacturing and
operation is that it has high capabilities, client/server architecture, central data
processing and administration, real-time task processing, reputation and being
standard in the sector. It enables a continuous business engineering within a re-
engineering philosophy and flexible for future needs and modifications.

21
 The three main characteristics of an ERP system architecture are that its data
dictionary, middleware and repository. Data dictionary is the association of the tables
and data locations in a database which could be used across all areas of an
organization. Middleware enables the ERP suite to be set up in many different
locations together with moving the data from a central to remote system. Repository
contains all semantics and organization model and exchanges information via the
program interface, namely the API. ERP packages in the sector generally have all the
business applications in this repository but firms also request special requirements
from the vendors. [1]

The general logic of the ERP systems are that the whole system is made up of
smaller parts, or modules, but the whole system is also greater than the sum of all
these parts. Because an ERP system is something more than the sum of these parts,
but we have to put some ethics, different perceptions and methodologies in order to
integrate all these parts to sum up to a whole meaningful system.

An ERP system can be perceived the total of the methodological and

systematical tools to give a meaning to a crowd and mass of data. The data stored in
the database system are nothing more than garbage if you cannot organize, sort and
query them efficiently in order to see or gain what you really need in terms of
information.

So at the first step of the ERP systems you need to have a powerful and useful
system to store and handle the data, which corresponds to the RDBMS (relational
database management system) and this is the heart of a sophisticated information
technology infrastructure, which will be fulfilled with the so needed additional
hardware and software utilities.

The decreasing hardware costs and increasing facilities in software solutions

and operating systems is the gate for a successful ERP implementation, but there is
more important new era of PCs. The most important one is the client-server
architecture of the IT systems and the scalable RDBM systems. All these powerful
new strategies for the processing of central single-location single-copy data bring the
real time operation and work flow for the ERP systems. In this architecture the

22
processing load of the central data and the application logic is divided between the
server and the client PCs.

We’re able to talk about various benefits of the ERP systems. A milestone
perspective for the product management in ERP systems is the supply chain
management applications, which is dealing with the inventory management,
purchasing of the raw materials, distribution and selling of the final products. An
efficient supply chain management system could let the suppliers or the customers to
access the relational modules of the system in order to perform the specific
transactions just like previewing the account and product information, product order,
etc. These specific applications may be combined together in an e-commerce
philosophy as a distinct module of the whole ERP system.

The general advantages and disadvantages of the ERP systems can be listed as
follows:

Advantages:
• Y2K compliance
• Ease of use
• Integration of all functions already established
• Suppliers and customers can be online communications
• Customization is an opinion
• Improved decision making due to appropriate information
• Improved process times
• Feasibility of administering prae facto control on the operations
• Internet interface is an option
• Reduces planning inaccuracies

Disadvantages:
• Organizational resistance to change may be high
• Changeover may take a long time causing cost overruns
• Data errors will be carried throughout the system
• Maintenance is costly and time consuming

23
 There are various possible developments in the ERP planning and software
tools, many of which are proposing a bright and powerful future for the ERP systems.
The most important developments are expected in these topics:

• ERP packages are most likely to integrate with the Internet facilities, or the
Internet usage will increase within the ERP software packages, either as a tool
of communication in different modules of the system or as distinct modules or
philosophies in order to achieve the optimal efficiency in the system. E-
commerce and web interfaces for the ERP software are developing issues in
that subject.
• Outsourcing is a new idea for the implementation and usage of the ERP
systems. It may be too costly to implement a sophisticated ERP package with
full functionality, and with an independent database management that will
also mean additional prices for additional software tools and maintenance of
the database systems. Instead of these, the small and middle size companies
are now choosing to outsource the ERP systems from other distributor
companies with the most important parts and applications. In these outsource
systems, the data and application servers are usually kept remotely and the
customer gets rid of the maintenance and implementation costs of the ERP
system.

II.2.3.1. Material Requirements Planning (MRP) Overview

The basic operational functions of a production company are the purchase,

production and sales. The company needs the raw material and labor force in order to
create an end item or product. A product is a term used to describe all the goods and
services sold by a company after performing a process or work on/with the assets of
that company. So this is something that the company adds its value. In order to
achieve success, a company in today’s challenge, has to plan all its functions, capital
and assets which are used in the process of creating an end item with minimized costs
and maximized quality. Because of that the companies define more of their on hand
facilities and presences as resource, and the vision of the overall planning concept
shifts to a resource planning definition. For instance, a resource for a paint production

24
company could be the purchased chemicals named as raw materials; sub assemblies
like semi-products, bases, pastes and other materials used in the production. The work
force, energy consumption like electricity and water, depreciation rates and periodic
repair or maintenance of the machines are the other items that we pay for, so they are
also the resources used in the manufacturing operations of a paint production
company.

No doubt that the most important item in a list of resources for a company is the
material, which has the highest priority to be planned. Because the biggest amount of
cost items in manufacturing is the purchase total of the materials arising from the
requirements of the materials in production. Also keeping a certain amount of
material in the stocks and keep they ready for production is another cost matter. Many
companies pay serious amounts of money for just holding that inventory. This
inventory is not only the materials used in manufacturing, but also a certain amount
of final products are to be hold in inventory as security stock to meet instant product
orders. These and many other reasons along manufacturing and planning process
make an efficient planning of the materials a necessity.

Material requirements planning (MRP) is a system that attempts to rein in

materials needs. It is a technique that is based around the concept of dependent
demand. The concept of dependent demand states that the demand for one item is
dependent on the demand for another item. [29] In the case of the company’s
manufacturing system, the final product is described as the packaged amount of paint
ready to be sold to the customer, which is made of raw materials and other chemicals.
The final product is demanded by the customer order itself, so demand on the final
product is free. But the demand for the raw materials arise from their requirements for
the manufacturing of the final products, so MRP is the effort for determining the
demand of the materials which depend on higher level items.

MRP is used in most of the manufacturing companies all over the world. The
reason is that MRP is a logical, easily understandable approach to the problem of
determining the number of parts, components, and materials needed to produce each
end item. [7]

25
II.2.3.2. MRP Inputs

II.2.3.2.1. Bill of Materials (BOM)

A bill of materials is a list of all the components – items, ingredients, or

materials – needed to produce an end item or product or one of its sub-assemblies. It
lists all of the sub-assemblies, components, and raw materials that go into a parent
assembly, showing the quantity of each required to make an assembly. It shows how
much of materials are needed in what order to manufacture a product highlighting the
child-parent relationships existing between them. [38]

Through the BOM it is possible to coordinate the requirements for independent

demand items with the requirements for sub-assemblies, components and raw
materials. Two common BOM formats are the single level BOM and the indented
BOM. The single level BOM shows only immediately required components of each
part number. The indented BOM shows all the required components for each
independent demand item including components of components and raw materials.
[39]

When there is a manufacturing order to be worked on, it is the BOM processor

that is run and gives the net amounts of materials to be used in the manufacturing
operations. The BOM outputs not only states these amounts of different materials, but
also depicts the way that these materials are used in manufacturing operations. There
could be more than one type of BOM expansion for a single manufacturing element.
These BOM versions prescribe different types of manufacturing styles or methods for
that item. Each BOM version or recipe of product is integrated with routes of
operations that state the process flow of manufacturing. It is only the standard BOM
version which is used in materials planning operations, so one of the BOM versions
for each item is defined as the standard one in the system.

26
II.2.3.2.2. Master Production Scheduling (MPS)

The MPS is the anticipated build schedule for selected (independent) demand
items by quantity per planning period. It combines two types of requirements for
independent demand items – requirements based on firm customer orders and
requirements based on forecasts. Since the MPS drives the material requirement
process it represents the management’s commitment and its authorization to order
from vendors and to manufacture. [39]

The aggregate production plan specifies product groups. It does not specify
exact items. The next level down in the planning process is the master production
schedule. The master production scheduling (MPS) deals with giving a time-phased
plan specifying how many and when the firm plans to build each end item. [7]

The important factor for the master production scheduling is the limited
capacity and limited resources for the company. The duty for the master scheduler is
evaluating the pressures from different functional areas of the company, such as
finance, sales, management and manufacturing. The quantities to be manufactured are
decided under some generic goals within the company, like minimizing the
inventories, increasing customer service and meeting the promised dates of the
customer orders, minimize setup times and costs, etc. The scheduler coordinates those
goals with the production quantities. As a basic input for the MRP system, the MPS is
given to the MRP program for several runs in order to examine the effect of schedule
changes on the net requirements on the independent demand items.

II.2.3.2.3. Inventory Records File

Inventory management is the backbone of all the purchasing, sales, planning

and cost estimation operations in an ERP system. As a central data management and
distributed application system, all ERP software presents the clients a wide range of
types for the company’s goods, products, articles, etc., all of which could be
described as inventory. These inventories are usually an item that could be used,
assessed or consumed by many procedures, tasks, processes or plans of a company
which are executed in short, middle or long term business operations. So when we are

27
talking about any inventory item that is used within a company’s business operations,
we should take into account that it could be related with more than one entity of the
company.

Part numbers are the universal communications medium between people, both
inside and outside the plant. Customers, salesmen, engineers, purchasing agents, cost
accountants, order billing people, factory workers, stock keepers, production
schedulers, inventory control people and still others all use the common language of
part numbers.[29]

A successful coding standard has to give enough comfort and facilities for
operational and executive reporting and analysis. The company coding standard of the
company is built on a hierarchical architecture. A hierarchical coding system supplies
more readable item codes for both the system users and the system analysts working
on the programmatic facilities of the ERP system. Also a hierarchical coding system
minimizes the system errors and presents a faultless code structure. The below figure
shows the basic part numbering rules: [34]

Table II.1 Part Numbering Rules [35]

Part Numbering Rules

1.Part numbers must be unique
2.Use only numeric characters
3.Keep numbers short
4.Avoid significant digits
5.Start now to clean up data

II.2.3.3. Data Files

The data stored in the database of an ERP system could be classified as static
and operational data. A file contains groups of records used to provide information
for operations, planning, management, and decision making [29]. File types used in a
database differs according to the time period that they store the data. Master files and
table files are used to store data for a long period. The temporary files are usually
called transaction files, work files, or report files

28
 Master files contain records for a group of entries. The attributes may be
updated often, but the records themselves are relatively permanent. These files tend to
have large records containing all the information about a data entity. Each record
usually contains a primary key and several secondary keys. [25]

The data stored in a master file usually determine the generic attributes of a
permanent entity or object. Descriptive information is data that do not change with
business events, such as an item description customer name, address, or employee
department. These elements are usually changed by maintenance programs using
direct access methods. [25] The company changes the master file data with either
database queries that operate as a batch and insert, update or delete data; or use a third
party program that simulates the manual data entry process with using the advantage
of the trigger functions working at manual interventions.

All the basic data needed for the enterprise operations depending on the
company items are stored in an item master table. Most of the operations and
processes carried out in the company refer to that item table. The generic item data
for a final product of the company include item no, description, group, specification,
color, class, default inventory locations, net and gross weights, barcode, unit codes,
etc. The below figure is an illustration from the ERP software of the company
showing the basic item data fields kept on a single form called “item catalog”. [7]

II.2.3.4. Inventory Balances

Inventory balances are highly important for the MPS to be created because the
gross requirements of the end items are related with the current inventory balances.
When creating the MPS, the computer program reduces the current inventory from
the production quantity. The end items could be either physically present in the stocks
or in the production phases, namely the work-in process inventory. MRP is only
interested in these quantities of end items. If there is a positive inventory balance for
that item, it will be subtracted from the gross demand quantity in order to find out the
net demands. This is valid for each distinct end item in the MPS.

29
 Inventory records file includes some specific data for the items that are used
within the MRP process such as the on-hand and on-order quantities mentioned
above, the lead times, lot sizes, and security stocks. As the MPS determines what and
how much to produce; lead times determines when to order the requirements, and lot-
sizes determines how much to order that requirements.

II.2.3.5. Lot Sizes

Lot-sizes are the part quantities issued in the planned order receipt and planned
order release sections of an MRP schedule. For parts produced in-house, lot sizes are
the production quantities of batch sizes. For purchased parts, these are the quantities
ordered from the supplier. [7]

Basic lot sizing techniques are listed as follows:

II.2.3.5.1. Lot-for Lot

The company uses this technique in order to perform the ordering of

manufacturing and purchasing batches according to match only the net requirements.
When dividing the MPS into days, the production quantities for a single day are
obtained. The MRP process uses the fixed lot-sizes of the materials according to a
one-day net requirement obtained from the MPS. In order to operate the lot-for-lot
technique, the economic order quantity data on the inventory record file of the end
items and materials is entered with a “0” value and the MRP program takes the lot-
sizes automatically from the daily requirement quantities related to the MPS. No
inventory of the material is left behind after the production phase, so zero-inventory is
carried over to the next planning period, namely to the next production day. No
inventory holdings cost occurs, but in this case the company has to meet a reasonable
amount of setup cost for each operational period.

When the company is manufacturing in a made-to-order period, the managers

decides to determine the lots-for-lot, then the material requirements are met according

30
to the net requirements. In this case the planner builds up the daily MPS lists by
highly evaluating the customer order remainders and creates the manufacturing orders
according to that.

II.2.3.5.2. Economic Order Quantity (EOQ)

In an EOQ model, either fairly constant demand must exist or safety stock must
be kept to provide for demand variability. The EOQ model uses an estimate of total
annual demand, the setup cost or order cost, and the annual holding cost. EOQ was
not designed for a system with discrete time periods such as MRP. EOQ assumes that
parts are used continuously during a period.[7] In cases with low demand per period,
relatively high setup costs, and relatively few levels in the BOM, it results in lower
total inventory costs than the L4L method because it combines the requirements for
more than one period in a single order.

The quantities calculated with the following Wilson formula are entered to the
item inventory records in order to determine the lot-sizes according to the EOQ
method. But the EOQs are not used directly in the system, but with its multiples. A
lot size is always calculated as at least one normal batch size, rounded to an even
multiple.

The Wilson rule looks like:

, where

Ordering cost = the cost of placing an order, entered per safety stock type.
Inventory cost = the cost of keeping one unit of the item in stock for one year. This is
calculated using the inventory cost in percent and the item's cost price. The stock
interest is entered per safety stock type.
Annual demand = forecast demand

Proposed lot size = Standard lot size "+ n * Multiple"

31
For Example:

EOQ=33 and multiple=25 give proposed lot sizes; 33, 50, 75…
EOQ=33 and multiple=40 give proposed lot sizes; 40, 80, 120…

II.2.3.6. Security (Safety) Stock Levels

Safety stock is the quantity of the goods or items that the company ventures to
keep in the stocks all the time. For every independent demand item, there’s a safety
stock value assigned within the inventory item records. In a made-to-stock
environment, the company focuses its production strategy on meeting the security
stock levels and the MRP system adds the material requirements of the safety stock
quantities on the overall requirement quantities.

The principal reason for having safety stocks in an MRP environment is to

provide a buffer for unanticipated fluctuations in demand. The necessity for having
safety stocks indicates, primarily, that the MRP methodology is not being used
properly since it should be one of the inputs provided for in the planning required for
establishing the master schedule, especially when independent demand items are
being considered. [2]

Safety stock is normally maintained for end items because they experience
independent demand which is subject to uncertainties. Similarly, a safety stock of
components that experience both independent and dependent demand, there may be
some uncertainty about how many will be used and when they will be supplied.
Shipments of orders for purchased components and raw materials can occasionally
arrive late. Scrap rates can be higher or lower than the average value used in
planning. These uncertainties raise the question of whether to keep a safety stock of
the components that experience only dependent demand.

32
II.2.3.7. Lead Times

“Lead-time as associated with the item number is the expected time between the
recognition of need and receipt of supply. Having a conservative estimate of the lead-
time is essential for the ERP system to do its planning”. [35]

Lead-time concept comes into account for either in design, purchasing,

manufacturing and customer order processes. Lead time is simply the time gap from
the start and finish of a specific operation. In order to maintain higher performance
for the overall ERP system, lead times are a matter to be paid effort to be reduced.
Because shorter lead times mean less cost, less workforce and more customer service.
In all cases, shorter lead time increases flexibility, reduces the need for inventory
buffers and lowers obsolescence risk. [29]

Lead time reduction is firstly due to a successful design of MRP system through
the BOM and routing data. Design engineers should work closely with manufacturing
to understand the manufacturing process implications and design products for
efficient production. Appropriate manufacturing data (BOM and routing) must be
created and the impact on manufacturing must be analyzed [29]. BOM data accuracy
is evaluated more detailed under the related topic.

An MRP system is due to calculate the selection, amount and time for the need
of the materials and final products. Its effort is to reduce the lead times but needs
initial values for both the materials and products. The planned lead-time is an input to
the system, not an output.

33
II.3. Activity Based Costing Systems

II.3.1. Introduction to ABC

The allocation methods of the traditional accounting systems lack the level of
detail for making good managerial and strategic decisions. They are inaccurate in the
way that they allocate the costs because the limited use of allocation bases in the
traditional systems detain the enterprises to obtain true product costs. Erroneous
product costing methodologies cause a big disadvantage for the managers at the very
beginning stages of creating business production and sales strategies. Therefore
enterprises tend to applying new costing methodologies for their accounting
infrastructure.

Activity based costing is a new accounting methodology that assigns costs to

activities rather than products or services, so ABC is primarily known as a new
methodology for overhead cost allocation. On the other hand it’s not just a new
version of the traditional cost approaches but also different costing system that
provides the information needed for business development. Therefore ABC is a
performance and measurement system for the activities, resources and the cost
drivers.

The idea of the activity based costing depends on defining cost consuming
activities which are driving the real costs. All the cost objects such as products,
services, jobs, units, batches and customers consume these activities and the
activities consume the resources. The activities help a company to fulfill the business
goals including production, service and sales. Identification of these key activities
together with the activity drivers that measure the activities consumed, and the
resource drivers that measure the resources consumed by the activities reveal the
main principle of ABC method. [27]

The costs are not eliminated or changed in ABC philosophy but ABC provides
the data to reveal the actual reasons for costs by defining cost causing and resource
consuming activities. In this manner ABC firstly tries to assign the expenses to
activities based on their resource use and then to the cost objects, such as products or

34
customers based on their activity use. The figure below shows the relationship
between the resources, activities and the cost objects within an ABC system.

Figure II.5 Main principles of activity based costing [27]

An activity based costing system could be created in many different designs

with sufficient cost drivers. The cost information hold on each distinct process
enables to create the different designs and compare their costs. [8] Whatever the
design of the system is, ABC presents a more accurate cost management
methodology by focusing on the indirect costs. It traces the expense categories in a
business rather than allocating them directly to the cost objects. This approach could
be interpreted as making the indirect expenses direct. Understanding the relationships
between the cost objects and the activities is critical to successfully managing the
indirect costs.

ABC is also named as an absorption costing method that stimulates the

strategic planning and decision making processes of a business, and a reporting tool
for the accounting information system in order to satisfy the information need of both
the internal and external authorities. [4]

35
II.3.2. Evolution of ABC

The very early ABC systems were designed to meet some strategic needs of the
businesses in order to improve the accuracy of the product costs. With the studies
performed in different plants the purposes were outlined as:

• Strategic analyses for the profitability of the customers, markets,

distribution channels
• Internal business improvements for identification of waste, cost reduction
priorities and profitable alternative product designs

But it was hard to use these early ABC systems for internal development
purposes when they were primarily designed for creating a new approach for product
costing. Also the activities of the system were not defined clearly and the broad cost
pools were assigned to more than one activity which was consumed by the products
in similar ways. [40]

In 1984 Robert Kaplan was the first to state the insufficiencies of the
traditional accounting systems in Harvard University by writing some papers
criticizing the use of return on investment (ROI) calculation, current financial
accounting perspective, software programs using the traditional accounting basics
and the experienced accounting managers neglecting the change management for
accounting. [24]

The ABC studies then developed with the plant applications performed by
Robin Cooper and Robert Kaplan. The year 1985 studies of Robin Cooper in Shrader
Bellows Group were a milestone for ABC evolution where the problem was
localized at the wrong allocation of the costs between the products. This statement
had leaded the studies to develop a better system in true allocation of the indirect
costs to the final products. [10] John Deere Components Works project carried out
by Robert Kaplan was the first to use the machine hour as an allocation base for the
indirect costs. This project had used a predetermined seven activities within the
company. The result of the project was could not answer all the operational questions
but the studies had driven some design changes in production plant and brought clear
advantages for product pricing decisions. [28]

36
II.3.3. Why ABC?

Traditional cost accounting systems are known as being developed when the
direct labor percentage was high in the total cost of the finished products of a
company. But then the increasing level of automation and technology in the
production process have decreased the importance for the direct labor and direct
labor based cost allocation has become inappropriate. [12] The distortion of the cost
allocation caused by the direct labor based traditional product costing systems are
suggested to be waylaid by an ABC system applied to the current cost accounting
approaches in the businesses. [36]

Today’s production environments make it impossible to gather accurate

product costs not only by the cost allocation in the company level but also in the cost
center level. So the number of the businesses implementing activity based costing
systems is increasing every day. An activity based system eliminates the distortions
caused by the traditional costing systems and provides the infrastructure for
enterprise excellence by improving cost accuracy and performance.

The use of the activities is appropriate for today’s accounting systems in order
to apply an activity based costing and management system to the enterprises. The
power of the activities which directs the managers to the activity based systems
comes from their characteristics which are listed below:

• Activities are actions: Activities represent the operations of an

organization and the changes made in the organization should be reflected
to the activities. Accurate tracing of the costs needs the breaking costs into
activities with unique cost derivers.
• Activities improve product cost accuracy: Erroneous assumption of the
costs depends on simplifying the usage factors of production into direct
factors but in contrast the activity based accounting traces the activities on
the basis of usage by the products. Demand of the company activities is due
to the cost of set-up-related activities of the production and they are
distributed to the products in the base of the production batches.

37
• Activities drive costs: Cost control focuses the occurrence of
the selected cost drivers for the activities. The approach is underlined with
minimizing the resources allocated to the activities.
• Activities facilitate evaluation of alternatives: Cost and performance issues
used in activity based systems enables the comparison of the departments,
divisions and operations of the other companies. The cost-effective
operations are then determined and they are tried to be improved within the
organization.
• Activities focuses corporate strategy: The strategic goals that reflect
what the organization wants to achieve are supported with the activities and
they are related with the organization goals.
• Activities complement continuous improvement: The strategy of the
organization in the basis of the activities includes the decisions on whether
to continue or redesign the current activities. The improvement of the
activities is performed by eliminating the waste, improvement in activity
performance and quality and simplification of the activities in order to
reduce the resource usage. The overhead costs are prevented from throwing
the corporate away from the strategic goals. Continuous improvement is
achieved by managing the business processes integrated with the activities.
• Activity accounting is cost-effective: Activity accounting is firstly
designed as a separate cost management system but then it is applied to the
current cost accounting systems. Activity accounting breaks the company
business environment into individual activities and the change s supported
in the means of these activities. New activities are also evaluated with their
cost and performance aspects. Then activity accounting is able to be applied
to the entire organization or a department, function or operation group of
that organization.
• Activities are easily understood by the users: Activities identify the
company processes and create the environment for the whole staff to talk in
global terminology. They are known as an effective medium for internal
communication between the operational and accounting responsible staff.
• Activities link planning and control: Planning and control is linked by
the activities within an organization in order to enable the managers to

38
 make necessary adjustments and see the results of the changes. The
modifications in the operations are reflected to the plans through the
activities and develop the consistency between the control system and the
planning system.
• Activities facilitate life-cycle management: Throughout the
production processes the life-cycle accumulates the costs of the products
into activity cost pools. Investments in the activities directly affect the cost
accumulations and create the basis for considering the discrete
expenditures.
• Activities improve decision support: The activity cost
consumption information gives a snapshot of the organization cost structure
which helps the managers to make strategic decisions on product designs,
production line operations, implementing new technologies and create the
organization policies. [6]

II.3.4. Differences of ABC from Traditional Systems

Traditional cost models apply resources to products in two ways. Direct costs
like material and direct labor are attributed directly to the product and other resources
are arbitrarily allocated to the product, typically through some allocation bases of
direct labor hours or machine hours. Sales, marketing and administrative costs are
not included in product costs.

Activity based costing does not change the way material and direct labor are
attributed to manufactured products. Direct labor is considered another cost pool to
be assigned to processes and products in a meaningful manner, no different than any
other resource.

The primary task of activity based costing is to break out indirect activities into
meaningful activity pools which can then be assigned to processes in a manner which
better reflects the way costs are actually arise. The system must recognize that
resources are consumed by processes or products in different proportions for each
activity.

39
 With ABC, all costs arise from the usage of the resources, which are such
things as material, labor, space, equipment and services. Resources are consumed by
activities and the cost associated with activities represents the amount of resource
they consume per unit of activity. Resources and activities are then applied to cost
objects, that is, the purpose for which the resource is consumed and the activity is
performed.

Each resource and activity has a unit of measure which defines the amount of
the resource consumed or activity required by a unit of demand for it. Resources can
be consumed by resources, by activities or by cost objects.

Activities can be performed in support of another or in response to a cost

object. A cost object can be a process or product and either an interim cost object or
an end user cost object. That cost object may be a resource used by other
departments to secure labor resource for their department.

Building a network of resources, activities and cost objects defines the

operational flow of the process or processes to be costed. Each resource and activity
has a unit of measure which converts them at a unit of demand rate. If a cost model is
to be useful and effective in determining process and product costs, it is imperative
that the business process be identified and understood first. Only then can costs be
attached to determine the cost of the defined process.

40
Figure II.6 Traditional cost allocation vs. activity based costing (ABC) [6]

II.3.5. ABC Model

The internal and external improvement purposes are the drivers for the ABC
model to be developed. This model sees acceptance from most of the ABC
implementers. The basic blocks end elements of an ABC system take place in this
reference model. The first key point of the model is having two different views; one
vertical cost assignment view and the other horizontal process view as seen in the
figure.

II.3.5.1. Cost Assignment View

This view mainly reflects the interrelation and information link between the
cost and the cost objects with specific causes of cost. The necessity of the
assignments of the resources to the activities and the activities to the cost objects is
underlined in the cost assignment view. Another interpretation of the view states that

41
cost objects create the need for the activities and the activities create the need for
resources. The information provided by the cost assignment view includes:

• Information about activities and activity costs that replies to the

questions for the activities that require the most resources, type of resources
needed by these activities and the alternatives to reduce these activity costs.
• Information about customers as cost objects in order to determine the
profitable and unprofitable customers.
• Information about non-manufacturing activities that is gathered by the
new activity based systems unlike the early studies of ABC. [40]

II.3.5.2. Process View

It gives more depth in the information for an activity, the concept of the work
performed in each activity and the relation ship of each activity with each other. In
fact the company works as production, sales, purchasing and many others are each a
process made of activities working in a series and the activities are customers of each
other in this context. This series of activities create a chain and brings information
about the cost driving and performance measures of each activity.

Figure II.7 The interdependency of activities in a process [40]

In this chain the cost drivers determine the definition of the work load for
each activity and state the reason of performing each activity. It also gives a clue for
the extent of effort to be expended for the activity to be carried on. Performance

42
measures evaluate the success of the activity with the output volume of the activity,
time required to achieve the activity and the quality of the activity. [40]

II.3.6. ABC Building Blocks

The cost assignment view is the part of an ABC model that presents the
building blocks of the ABC system and the relationships between them. These
building blocks are explained in the following lines. [40]

II.3.6.1. Resources

Resources are the sources of cost that are directed to the performance of the
activities. The manufacturing resources include direct labor and materials, indirect
costs and the costs outside of production. The flow of the resources to the activities is
generated according to their expense consumption. The factor that determines the
assignment base of the resources to the activities is the resource drivers. The resource
types are traced to the activities and the expenses are accumulated in the activity cost
pools. The primary source of these expenses is the general ledger of the organization.
The expense items in the general ledger are reflected to the activities in a way that
these resources explain how an activity and the work related to that activity is
performed.

Figure II.8 ABC Building Blocks [40]

43
II.3.6.2. Activities

They are the real units of work that a company performs in its operational
life-cycle and make up the central existence of an activity based accounting system.
They differentiate from one organization to another according to the technology use,
production designs and management approaches. Also the number of the activities
differs according to the management approaches and the developed design of the
ABC system. But there are some basic activities used by all the ABC systems
implemented to the production companies, such as purchasing, quality control, repair
and maintenance, etc.

II.3.6.3. Resource Drivers

It creates the link between the resources and the activities in order to assign
the general ledger expense items to the activities in the means of resource usage for
each activity. All the costs assigned to an activity make up a list which is called a bill
of cost that will sum up to the total activity cost of that activity. The largest cost
pools are especially the potential activities that could be worked on for strategic
decisions on cost reduction.

II.3.6.4. Activity Centers

Activity centers are logical grouping of the company activities in order to

simplify the cost accumulations from a distorted bill of cost to definite cost pools.
Activity centers could be taking the particular departments as the grouping basis of
the activities in order to support the management of the processes by localizing the
work performed in each activity center, the resources needed to perform this work,
determine and try to eliminate the waste and determine the requirements of each
node in a linked activity chain along a process. Activity centers also express the
performance of each department or process selected as the grouping base.

44
II.3.6.5. Cost Objects

The cost objects are the end point of a cost allocation chain and they are the
concrete existences that the cost accumulations are to be distributed between each of
them. By tracing the cost to these cost objects an ABC system provides information
for determining the valuable cost objects in the means of profitability, the measure of
value for each cost object and the mission critical insight for the cost objects that are
to be reduced for cost.

A cost object can be a customer, sales channel or finished product. The

individual items sold to the customers are named as the finished product and they are
internally grouped as product groups or families according to their related design
features, technical or strategic specifications. Customers are the cost objects that are
related to these products with sales operations. Customer costing then expresses the
total cost of the products served or sold to the customers. The groups of these
customers make up the sales or distribution channels which the cost objects are
dealing with especially the strategic sales or production decisions of the organization.

II.3.6.6. Activity Drivers

They are simply the methods used to assign the cost of each distinct activity to
the products or other cost objects. The measure for an activity driver is the frequency
of the activity to be performed for each cost object within a specific accounting
period. The use of the activities are measured directly or correlated for each cost
object. The important point here is to select the right activity driver for each activity
in order to best represent the units of work done for each activity.

II.3.7. ABC Methodology

ABC is a system that assigns the expenses first to the activities and then to the
cost objects or namely to the products when we’re talking about an activity product
costing system. This situation yields a two-stage cost allocation and product costing
procedure.[9] The first stage tries to find out the resource usage of each system-
defined activity and the second stage aims to distribute the activity costs to the
products according to the activity consumption of each product or product group.

45
 The steps for applying an activity based product costing system can be outlined
as follows:

Stage 1. Cost Allocation

a. Activity analysis
b. Activity cost calculation

Stage 2. Cost Allocation

a. Trace activity costs to products

b. Analyze unit costs

Figure II.9 Activity based costing system in more detail [27]

II.3.7.1. Stage-1: Cost Allocation to the Activities

II.3.7.1.1. Activity analysis

This is the study to define organizational activities by decomposition of the

operational processes carried on within a company. Taking up the company
processes as an entire system is impossible to manage and evaluate so the system is
broken into sub-processes or activities that form a whole chain of company

46
organization which is based on the mission statement. The activities should be
grouped in the basis of the customers and products as they differentiate on this basis.
So the activity list should be pulled down to a 10-20 range for higher management
interaction but this range may change according to size and complexity of the
corporate operations. Activity analysis requires the accurate determination of the
corporate activities among the organizational units such as departments and
divisions. Therefore,

”the activity analysis is a communication tool that provides a set of structured

information about what an enterprise does”. [6]

When defining the activities the first step is the determination of the activity
units that correspond to the organizational units taking place in the organizational
structure of the company. Then the activities performed by the activity units are
redefined to the activities with the techniques including the analysis of the historical
records, organizational units, business processes, business functions, engineering
studies and current activity definitions.

An activity list is created after these studies covering all the work performed in
the company. The key issue to be given highest importance is to keep the activity list
as simple as possible in order to get maximized benefit from an activity accounting
system. [6] Activity decomposition is the simplification of the activity list into
groups that have activities with common functional orientation. After that
decomposition the individual activities in the final activity list have homogeneous
outputs. [22]

The activities are classified as primary and secondary where the output of the
primary activities are used out of the organizational units and the secondary activities
support the primary activities with the output generated within a single department.
[6] The primary activities are generally value-added activities that the output of these
activities could be directly related with the cost objects n order to state the activity
consumption of each product. But the non-value added activities are the one which
could not be related in such a way and they have to be reduced with reengineering of
the system. [22]

47
 The activities are also classified into four groups according to the cost
hierarchy [6]:

1.Unit level activities: Activities that are repeated for the production of each
unit. The production volumes are directly proportional with these activities.
Such a production environment can be defined as made-to-stock production.
The quality control operations can be an example to these activities if these
operations are performed for each distinct unit of product.
2.Batch level activities: When the production type of the company is not
continuous and the production is made in batches according to the customer
orders or production projects. The production is performed as made-to-order
type. The costs are calculated for these production batches. Quality control
operations can also be performed in batch level with generalization of the
quality measures to the whole of the production or purchasing batch.
3.Product level activities: These activities are performed for a specific
product or product family so the product level activities are specified to the
related products. Research and development activities are a good example for
the product level activities.
4.Facility level activities: These activities could not be specified to
definite products or production batches but they are performed in order to
carry on the operational life-cycle of the company. The repair and
maintenance activities could be defined of this type.

II.3.7.1.2. Activity Cost Calculation

The costs are gathered especially from the general ledger in order to be traced
to the activities. These costs can be salaries, non-wage related expenses for
establishment and machinery maintenance, secondary materials used in the company
processes, etc. The cost of an activity is possible with tracing the total expenses for
the production made to perform a specific activity. The derived activity costs are
then traced to the cost objects such as products or customers based on the usage of
the activity.

Activity cost calculation is due to pass over some key steps in order to reach
the final activity costs:

48
a. Selecting a Cost Basis

Determine Cost Type: One of the cost types should be chosen for the activity
accounting system, which are actual cost (exact cost paid for a factor of production
based on a financial transaction, able to reflect the business changes), budgeted cost
(reflecting the management’s opinion as the outcome of a periodic structured
planning process), standard cost (predetermined cost based on normal conditions of
production volume), planned cost (derived from the strategic and operational
planning systems with the output from the planning systems as a planning
assumption, including forecasts), engineered cost (derived from industrial
engineering studies providing insight for performing an activity and increasing the
performance of this activity).

Determine Cost Time-Horizon: In order to get the stability of the data

yearly or quarterly time-horizons are advised to be selected in order to eliminate the
seasonal fluctuations of data, and adjust the data for the changes in the business
environment like reorganizations and modifications of the activities.

Classify Life-cycle Activities: Life-cycle accounting provides a framework for

the development and reporting of cost and performance over the useful life of
significant assets. It is related with the initial identification of the consumer needs
and integrates them with planning, research, production and evaluation facilities.
Product design activity represents a life-cycle cost and the activities provide the
foundation for the life-cycle management system. The activities are forecasted for
the following periods according to their potential benefits.

b. Trace Resources

Determine Source of Data: General ledger is the primary and recommended

source for the expense data or the expense data can be derived from an engineering
study as estimation. Level of detail in the general ledger is the limit for the cost
analysis but more important point is the affect of the general ledger on the effort to
transform the department costs to the activity costs. Here the general ledger should
present enough detail to integrate the department cost data with the activity
definitions.

49
 Group Related General Ledger Costs: The data gathered from the general
ledger are classified according to the expenditure type. The tracing of the cost to the
activities is performed from the general ledger of each department according to
similar cost behavior patterns and the costs are separated into cost pools. The
expense categories may be one of:

• Material (cost of purchased material and the other costs for bringing the
material to the production process)
• Labor (cost of all activities related to the acquisition, training and support
of staff)
• Technology (cost of all activities necessary to acquire and operate
technology)
• Utilities
• Plant and Facilities
• Information Systems
• Freight
• Travel
• Taxes
• Insurance
• Inventory

Establish Causal Relationship: The causal relationship between a cost and the
activity represent a factor of production to be consumed by an activity. In order to
establish this causal relationship, the tool is the activity measure which is common
for both the factor of production and the activity, which is called the first stage cost
drivers. Traceable costs of resources used by the activities are the direct resource
costs (machines, personal costs, energy, materials, etc.) and the indirect costs
(heating, lighting, computers, secondary materials, etc.) These costs are able to be
causally related to the activities with causal bases. Non-traceable costs are also
allocated to the primary activities in order to get completeness and get rid of
exceptions.

50
Table II.2 Traceable cost types and their measures [6]

Factor of Production Measure

Manpower Time
Technology Machine Hours
Facilities Square Meters
Utilities Kilowatt hours, number of people, etc.

c. Select Activity Measure

Activity measures selected for the resources are the inputs, outputs and the
physical attributes of each defined activity. Choosing the activity measures
approximates the cost behavior of an activity. Accurate selection of an activity
measure directly affects the success of an activity accounting system.

The activity measures should be homogeneous in the way that the output
values must be in the same kind which means that the outputs should be having
consistent cost patterns and require similar amounts of the factors of production.
Also the relative cost of the activity is another important factor in selection of the
activity measures and it depends on how large the activity cost is as a percentage of
total overall cost. After selecting the activity measures, the measure is calculated by
the frequency of occurrence for each activity. The activity measures should be
validated in order to ensure the relationship between the activity costs and the
activity levels.

d. Calculate Cost per Activity

This is the last step of activity costing, including the determination of the total
accumulated costs in each activity cost pool and finishes the activity costing process
by achieving the cost values ready to be distributed along the cost objectives. [6]

II.3.7.2. Stage-2: Cost Allocation to the Cost Objects

Final acquired activity costs are first need the knowledge of the cost
objectives to be distributed on. The causal relationship between the activities and the
cost objectives are the second stage cost drivers. These cost drivers could be set-up
time, machine hours, work order frequencies, labor or inspection times, etc.

51
According to the activity usage percentages of the cost objectives through these cost
drivers, the activity costs are assigned to the cost objects.

II.3.8. An ABC Example

This is an example application for ABC in production. The sample values are
selected as imaginary TL values [17]. Company X produces A and B products. The
production quantities are multiplied with the total of the unit labor costs and the
direct material costs in order to find the primary costs that will be used in ABC
calculations. Table II.3 gives the general information for these products.

Table II.3 Product Information for ABC system [17]

A B
Production and sales volume 40.000 Quantity 10.000 Quantity
Direct materials 200
Direct Labor
Machinery Department 60 (2 x 30)* 60 (2 x 30)
Assembly Department 60 (2 x 30) 60 (2 x 30)
Primary Costs 320 320

Machine hours per unit in 1 3

in machinery department

Budgeted general production costs

Machinery Department 800.000
Assembly Department 500.000

TOTAL 1.300.000

* Direct labor cost per hour = 30 TL/hour

Unit costs are calculated as follows according to the traditional cost accounting
system:

Total budgeted direct labor hour = (40.000 x 4) + (10.000 x 4) = 200.000 hours

General Production Costs Allocation Base = 1.300.000 / 200.000 = 6,50 TL/hour
General Production Cost per unit:
A = 6,50 x 4 = 26 TL / unit B = 6,50 x 4 = 26 TL / unit
Unit costs:
A = 320 + 26 = 346 TL / unit B = 320 + 26 = 346 TL / unit

52
 In following tables the activity based costing is applied to the company and the
cost values are corresponded for each of the accounting systems. The first table
represents the selected activities, activity costs and the cost drivers selected. The
second table gives the activity unit costs for the A and B products, and the costs of
two costing systems are compared. The cost shifts are clear when the ABC system is
applied to the company.

Table II.4 Activity costs pools and cost drivers [17]

Unit
Activities Cost pool Cost Driver Cost
Machine adjustments 10.000 120 Adjustment (A=20, B=100) 83,29
Engineering 310.000 7.000 Hour (A=1.000, B=6.000) 44,29
Material Transport 70.000 220.000 Cost per kg (A=170.000, B=50.000) 0,32
Quality Control 60.000 800 Control (A=100, B=700) 75,19
Machinery Costs 850.000 45.000 Machine Hour (A=15.000, B=30.000) 19,89

TOTAL 1.300.000

Table II.5 Calculation of the unit ABC costs [17]

General Production Cost

shares A B
Machine Adjustments 83,29 x 20 = 1.667 83,29 x 100 = 8.333
Engineering 44,29 x 1.000 = 44.286 44,29 x 6.000 = 265.714
Material Transport 0,32 x 170.000 = 54.091 0,32 x 50.000 = 15.909
Quality Control 75 x 100 = 7.500 75,19 x 700 = 52.500
Machinery Costs 19,89 x 15.000 = 283.333 19,89 x 30.000 = 566.667
General Production Cost per
unit 390.877 / 40.000 = 9,77 TL 909.123 + 10.000 = 90,91 TL
Total General Production Cost 390.877 + 909.123 = 1.300.000 TL
Unit Costs 320 + 9,77 = 329,77 TL 320 + 9,91 = 410,91 TL

• Traditional system unit costs: A=346,00 TL/unit B=346,00 TL/unit

• ABC system costs: A=329,77 TL/unit B=410,91 TL/unit

53
II.3.9. Role of ERP in Accounting and ABC Integration

The role of an information system is collection, processing, recording and

distributing data for planning, control and decision making. An accounting
information system reflects the accounting side of the business processes. In any
organization, an accounting information system fulfills three basic functions: [37]

• Collecting and recording data for activities and operations

• Processing data into information used for planning, application, control and
decision functions
• Providing the necessary controls for stability of the business

Emerging information technologies and management information systems have

changed the accounting systems in a great deal. As the information technologies are
used in different departments and in accounting, the software programs have been
insufficient to meet the daily information needs, so the enterprises aimed full
integration with the support of the hardware and communication facilities. Early
accounting systems were only responsible with the general ledger and the legal
notices reported to the institutions. But then they started to use integrated software
programs which were dealing with inventory control, customer accounts, cheque and
promissory notes, payroll and bank accounts.

At last enterprise resource planning (ERP) programs are developed in order to

maintain a fully integrated system for both the accounting and operational
departments and functions of an organization. These software systems have given the
ability to share central data with higher ease and accuracy. In a composite structure
of an ERP system, accounting takes place as a distinct module.

ERP system is in fact an ambitious attempt to integrate all the departmental

operations and business processes into one system. It provides information for sales,
finance, customers and suppliers, inventory elements, production and procurement
volumes. Business information and current performances of the organization are

54
presented in real-time for clearer overview. The anatomy of an ERP system is based
on a central database collecting and processing the business information. [27]

In today’s fluctuated business environment, ERP is a strategic tool presenting

the abilities necessary to maintain a competitive advantage to the corporate by
integrating dispersed business functions and providing a real time operation system.
With the use of an ERP system, the users can access more accurate and reliable
information at any time; the business gains the necessary infrastructure for the
control of the investments and the capital, time and resource saving, determination
and evaluation of the financial resources, profitability planning, cost management,
cash management, budget control, quality control, reduction in the stocks, control of
the manufacturing processes, efficiency in materials management, capacity planning,
better customer relationship, electronic data interchange (EDI) and e-commerce. ERP
systems can also offer more and better information in reduced costs. Activity based
costing, activity based budgeting, balanced scorecard, value chain analysis and
similar applications can be used successfully with an ERP infrastructure.

Figure II.10 Anatomy of an enterprise system [33]

55
 The basic difference between an ABC and ERP system is the definition of the
costs. ABC defines the costs based on the cost driver rates and it cannot use
continuously updating cost data. The cost object can be product for each system but
it is the only cost objects that ERP can use where ABC is able to select other cost
objects such as customers or sales channels. The cost objects in ABC have unique
activity structures. The same approach is carried on with routes in ERP. Each cost
object, namely the products have their own routes determining the use of the
materials that make up the object. It handles the bill of materials efficiently ABC is
more flexible in creating the resources that support the activities.

Figure II.11 Structures of ABC and ERP compared with each other [33]

Traditional use of ERP takes the ABC system as a partner. ABC completes the
lack of ERP for flexible cost allocation. In ABC software the resources can be
allocated more than one activity type with a specific allocation base but ERP
allocates the resources directly to the cost objects. ABC is more versatile in cost
allocation in that means as it only enables the cost allocation through the activities.
ERP and ABC have their own roles in building the model of the functions for an
organization. [27]

A successful integration of ABC with an ERP system includes some

technological solutions. The aim of integrating ABC and ERP systems are:

56
 • improving the currently used ABC model,
• increase the extent of ABC data to be used by decision-makers, and
• improve implementation and use of ABC and ERP system.

These advantages reduce the cost of development and improve the quality of
decision support for the decision makers within an organization.

The necessary data items as inputs to an ABC model may reside within an ERP
system presenting the use of the ERP system as a data source to ABC. Financial and
non-financial data, such as resource driver and activity driver volumes, can also be
obtained from the ERP system on a timely basis. The alternative of manually
gathering and inputting the ERP data to the ABC model is much more time
consuming. Higher integration of ABC with an ERP impacts the amount of benefit
received from an ABC implementation and the amount of data gathered from the
ERP system depends on this integration level.

ERP is generally not just made of human resources and accounting modules.
The additional modules of an ERP system presenting data for such as inventory
movements, capital acquisitions & construction, service delivery orders, and sales
contracts provide many of the inputs related to resource driver and activity driver
volumes for the ABC model. These inputs from ERP software are key to the ABC
model structure and enable the ability to evaluate the customer or product
dimensions as cost objectives to the cost accounting system. [23]

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PART III

CASE STUDY

III.1. Introduction

This case study is about implementing an ABC methodology to a production

company. The aim of this part of the thesis study includes;

• Exploring the rationales of the material requirements planning (MRP) system

provided to the company by the ERP software,
• Evaluating the basic principles of the ERP inventory and planning approaches
that provides a robust infrastructure for accounting information system,
• Exploring the operational structure of a paint production company and
localize the production, execution and management activities of that
company,
• Applying the activity based costing (ABC) system to the paint production
company in order to calculate true product costs, evaluate the results of this
new costing system and compare the results with the cost amounts of the
current costing system.

In the first part of the case study general information has been presented about
the company in order to give some clue about the production and management
structure. The company processes and functions are analyzed as a feedback for the
case study.

58
 In the next part of the case study the MRP system and related inventory
management and planning issues are considered, which are supported by the
information technologies implemented to the business life. The MRP approach is
presented together with the company application within the ERP system.

The last part of the case study includes the ABC methodology developed for
the company. The company activities are defined and the indirect cost items are
grouped for these activities in order to allocate to the product groups and calculate
the activity costs, ABC system unit costs and sale prices. These costs are then
compared with the traditional accounting system.

III.2. General Information about the Company

III.2.1. History

As the first domestic paint producer in Turkey, the company has been a
forerunner and locomotive for the Turkish paint sector in achieving the up to date
standards of today.

As one of the pioneer industrialists in the continuously developing young

Turkish republic, they established a new factory in Halıcıoğlu in 1949 with the aim
of expanding and increasing present plant in order to meet the increasing demand.
All kinds of synthetic and Alkyd resins used in production of synthetic paints and
varnishes were started to be used by the factory with the alkyd resin press machines;
and then solvent based, synthetic resins and alkyd resin began to be produced; so the
factory became into a fully integrated foundation.

The company, producing different variety of paints according to Turkish

market demands, was moved to today’s paint production foundation with 30.000
tons/year capacity in an 18.000 m2 area to supply increasing demands. The company
is developing day by day and considering importance of product and service quality.
The most important mission of the establishers and all employees are to carry on
firm’s values and history as loyal as it has been deserved. To realize this aim,

59
construction of new plant located in Gebze Organizational Industrial Zone at 33.000
m2 area with capacity of 100.000 tons/year has been planned. The company will
continue to work on his vision force; following continuously developing varies to be
focused on customer and employee pleasure without making any concession for his
quality since its foundation.

III.2.2. Activity Field and Organization

The company manufactures and sells interior and exterior building paints and
supplementary chemicals for end users and the wholesalers of the company.
Administration and manufacturing operations are performed in a single location. The
company works with an 18000 ton of paint production per year and sells the paint
both to the wholesalers and retailers placed in Turkey and abroad. The raw materials
used in production are purchased from other companies of the chemical sector with
procurement agreements. Some of these procurement agreements also include import
activities from the chemical companies abroad.

The company management has described the company vision, mission and
strategies according to the conditions and the specifications of the market and sector
in which it shows its activity. In order to apply the vision, mission and the strategies
most effectively, the organization of the company is structured as it optimizes the
“flexibility”, “effectiveness” and “productivity” elements.

Within this organization one person may have more than one responsibility.
The company organization is considered with two different functional dimensions,
although the physical workplace is the same:

• Central functions: These functions give service for the subjects of

interior/exterior sales marketing activities, interior/exterior purchasing
activities and accounting-finance activities.

Perform basic managerial activities, determines the strategies and

targets.

60

Determine the necessary activities needed to produce the new
products which are appropriate to the sector and describes the politics,
methods and the systems in order to materialize these new products.

Make the technological researches for the new production projects
and the resource planning for them.

Determine the strategies for the effective usage of company resources
and executes the financial activities.

Apply the legal obligations of the company, inform, manage and
supervise the production with these obligations.

Organize and carry out the marketing and selling activities of the
company products related to the interior and exterior market.

Perform the buying activities needed to carry out the Central and
Production activities.

Organize and supervise the activities performed for the quality system
and reports to the executive management.

• Production functions: These functions give service for the subject of

production activities to produce the products according to the product quality
measures expressed in the company mission and strategies.

Carry on the production activities to maintain the specifications for

the products that are promised to the customers.

Produce projects in order to increase the market share of the company,
make investigations for the new products and informs the executive
management.

Maintain the effective and efficient production.

61
III.2.3. Company Infrastructure

The company identifies and provides all infrastructure requirements including

working facilities, utilities, equipments, software and support services needed to
ensure that products meet required specifications and achieve customer satisfactions.
Storage conditions for raw materials, semi finished goods and finished products have
been identified, are monitored and periodically reviewed in order to prevent self-
degradation or damage by environmental conditions. Working/handling conditions
and methods are defined, documented and effectiveness of implementation is
monitored in order to prevent fire, spill, etc. in connection with for dangerous raw
materials, semi-finished, finished goods and relevant processes. Maintenance of
equipment is planned and systematically conducted in order to ensure continuing
process capability. Preventive measures for the prevention of errors or accidents
during operation of equipment is defined, documented and implemented when
needed. Operation and maintenance of equipment and facilities/utilities assisting the
production and distribution activities have been included in the company’s Quality
System. The sustainability of such equipment and facilities are maintained by the
same methods as for other equipment and facility.

III.2.4. Basic Company Processes

III.2.4.1. Customer Related Processes

Customer orders, needs and expectations have the first priority for the
company. To ensure that market needs, customer requirements and complaints,
market developments are continuously followed. The company enables the
customers to obtain their needs and expectations always in compliance with written
agreements and declarations.

Offers submitted to the customers will be evaluated and reviewed by

authorized personnel to ensure company’s capability in responding to the offer
requirements. As a result, the company provides products and services, which will be
on the level of the customers’ demands and expectations will be ensured. To prevent

62
any confusion, all negotiations will be made in writing and an agreement will be
obtained with the customers.

In case no written document is received from the client, the negotiations will be
recorded by the company and the customer will be notified in writing if needed. If
there is a difference/contradiction between the offers made and the approval
received, the acceptance of the customer will be obtained for eliminating such
difference.

In case any changes in the scope of the orders is deemed necessary, the
changes will be carried out following the approval of the company and the customer
and relevant departments will be informed in writing. Records of offers submitted to
the customers, approvals received and negotiations will be kept in order. If required
by the customers, they will have access to the related quality control methods, their
results and records, as appropriate for both the company and customers.

III.2.4.2. Design and Development Processes

New product development activities may be initiated along the lines of

customer requests and expectations, but also for the purpose of increasing product
quality and cost effectiveness of the company.

Before commencement of a product development activity of the company,

unspecified points in customer requests will be eliminated and what is expected of
the new product by the customer will be identified. Design and development
activities are planned first and responsible persons are identified. The company
carries out all design and development activities by itself. It is ensured that new
products are always complying with legal requirements and satisfying the company
and customer expectations.

Documents will be prepared describing products and production processes that

bring about those products and their acceptance criteria. Such documents will be
revised by the. Design documents are revised and applied when changes to be made

63
in design and developments are made by authorized personnel who have initially
approved the same design and development activity.

Product development process will be reviewed by authorized personnel at

various stages of production, identified verification and inspection activities are
carried out and records of those reviews will be kept in archives.

III.2.4.3. Purchasing Processes

In order to provide products with the ability to fully meet customer

requirements, all products and services are acquired by suppliers with proven
capability. With this objective all suppliers are kept under controlled in point of
providing confidence in meeting the company needs and expectations.

The scope of control varies according to the supplied products effect to the
product quality provided to the customer and the cost effectiveness. For this purpose,
the suppliers have been segregated in different groups, different evaluations and
control criteria has been elaborated for each of the groups. The sustainability of the
capability of the suppliers is secured through periodic evaluation and monitoring of
the supplier performance.

The company clearly defines the requested products or services from the
suppliers. For this purpose documents that have been approved by authorized
personnel are sent to the suppliers. All information and amendments are provided to
the suppliers on written documents. Purchased products are subject to in-going
inspection according to importance of the product and the performance of the
supplier.

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III.2.4.4. Production Process

III.2.4.4.1. General

The production process is distributed into several phases. The raw materials
purchased are used either directly used in production operations of the finished
product or some semi-finished products. The result of last phase of the production
operations is the unpackaged paint which is ready to be filled into the packaging
materials. Then the packaging is performed with specific amounts and the paint
becomes ready to be sold. The finished products are sold under many brands with
different application areas and technical specifications.

The company ensures that all activities for production and service are
conducted with optimum cost effectiveness under controlled environment in
conformance with planned and documented procedures. Documented procedures are
prepared covering all activities from the point of receive of raw materials to the point
of delivery to the customers. The procedure include,

• Specifications for products and services,

• Clear work instructions for assurance of conforming products,
• Use of adequate production and service equipment,
• Provision of adequate production and working environment,
• Use of adequate measuring and testing equipment.

III.2.4.4.2. Product Identification and Traceability

The company ensures the identification and traceability of all products by

adequate means from the point of receive through production and delivery.
Traceability between products, documents, processes and results are maintained by
utilizing clear methods for identification of batches. Through the traceability system,
customers are assured full conformance of the products. All kinds of products are
before use, during production, storage and delivery, subject to a labeling system,

65
where the products are clearly identified. The labeling includes all needed
information.

Following methods are applied as appropriate for the identification of the

products:
• Labeling,
• Process Cards,
• Storage in a predetermined area,
• Color codes

In case the products use or preservation is limited for a time period, this
information is included in the method of identification.

III.2.4.4.3. Handling, Storage, Packaging and Delivery

The products are handled, stored, packaged and sent to the customers in a safe
and secure manner. The products are internally handled and stored in a safe manner.
Methods and specifications are applied for the packaging of the products. Adequate
preservation methods are applied for especially products with a limited time of use.
All required information for the adequate use and preservation of the products are
provided to the customers. Defined methods for delivery and dispatch are applied in
the company, ensuring the delivery of the right product to the right place at the right
time.

III.2.4.4.4. Inspection and Testing

Regardless of which stage the products are in, the inspection and test status is
clearly identified. Defective products are marked and segregated from other products
by adequate methods. Inspection and test status is identified by labeling, marking,
recording on accompanying documents or isolation methods. The indication of
inspection and testing status shows whether the product or service is awaiting
inspection or whether the product has met the specifications after inspection. Applied
indications or records show who has taken the decision.

66
III.2.4.4.5. Inspection and Testing

All products, services and documents are, while under the responsibility of the
company, subject to pre-determined inspection according to documented procedures
in order to verify that they conform to prescribed requirements. Products received at
the company are subject to inspection according to defined inspection methods
before released for use. Nonconforming products are clearly identified and isolated.

The scope of inspection before release for use may vary according to the
capability of the supplier, type of product, point of use, etc. Inspection may comprise
of test methods such as review of product certificate, visual inspection, measurement
and testing. Products may be released for use under concession and/or exception
upon the approval by authorized personnel. Records of inspection and testing
performed according to documented instructions during all process activities,
provides sufficient assurance that products and services conforms to specified
requirements.

All products are inspected prior to dispatch and the products can only be
dispatched when the inspection results meets the specified requirements. Acceptance
criteria are defined for inspection and testing applied to products and services.
Inspection and test results are recorded. In case acceptance criteria are subjective, the
personnel performing such inspection are kept under control.

III.2.5. Product Variations

The paint sales also vary according to different color and filling amounts.
These variances determine the finished product types and sales amounts. The color
variances do not affect the sale prices of the products but the prices depend on the
filling amounts and the product brands. The product brands with similar application
and usage functions are also separated into three quality levels which are named with
different sub-brands. By excluding the color types and filling amounts the overall
paint production is divided into over 80 product groups. All the sub-production
phases are interrelated with these product groups.

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III.2.6. IT Infrastructure

IT infrastructure of the company mainly depends on the ERP system used in

the company, containing real time enterprise system software. The main
specifications of the enterprise system software and the projection progress of the
ERP system may be briefly described as follows:

ERP software used in the company is a business system, i.e. a computer system
designed to assist companies in running their daily operations and information
management. It is a client/server system, which means that the database is
maintained on a central computer or a server, to which the users have access via a so-
called client. The biggest advantage with client/server systems is that all users have
access to the same source of information. They do not have their own copies/sets of
information, which eliminates many risks, for example users working with
information that is not up-to-date. It also means that database administration and
security can be managed centrally.

The information that is created during daily operations is stored in a large

number of tables, many of which are related to each other; i.e. it is a relational
database. The language used to manage the database is SQL (Structured Query
Language).

In simple terms one can say that the business system is comprised of a very
large number of programs that can be used to fill in, process and search information
in the database. These programs are grouped together according to common
functions within companies, e.g. Logistics, comprising Purchases, Inventory, Sales
etc. and Financials, comprising Accounts Receivable, Accounts Payable, General
ledger etc. These groups are also called applications or modules.

ERP applications are integrated, which means that information only needs to be
entered once in the system. If an installation does not include all components
(modules/applications) information can be retrieved from other external systems or
entered manually directly in the application.

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 The system is based on a relational database. All the information entered or
read into the system regarding the company's operations is stored and grouped in a
large number of related/associated tables. This structure makes searching and
processing information in the database both simpler and quicker. End-users do not
normally need in-depth knowledge about how relational databases work.

III.3. ERP Approach for Production

III.3.1. Part Coding

The company purchases chemicals, package materials and stickers as the raw
materials that are used in the production of building paints. These raw materials are
required by the production line operations of the company, their market exploration is
performed by the R&D team, its purchase plan is prepared by the accounting
department and evaluated by the executive management, they have to be provided
from the suppliers by the purchasing department, stocked in the warehouses by the
inventory management, demanded by the production managers and their account
transactions are recorded again by the accountants and the finance department.

The case shows that an item in the inventory is likely to associate with various
operations and uses among the company. So staff needs to use a common language in
order to work on these operations. The most important point in a company’s linguistic
is certainly the descriptions assigned to the materials, entities or the processes and the
necessity of naming all of these concepts. An item number or code is that name for
stating the identity of the item. An item number is a numeric or alphanumeric
character string that identifies a single object. The thing that we’re describing with an
item code is an object that occupies space and should have just a single name. The
unique item code must not repeat and should mean the same thing in all operations
and applications of the company.

Deciding a coding standard for the inventory items and item code assignment
are the most important and preceding work that has to be accomplished in an ERP

69
project. The ERP system is designed for all the industrial and operational needs of the
company. So the code standard should cover all the needs of a modular programming
environment.

A production company like the one studied in this thesis has any subsystems
and semi operations throughout the whole production line that will give out the final
product. A final product of the company is indeed more developed versions of
preceding semi products that are being processed in the operation line. This
interaction has to be reflected to the coding system. A hierarchical coding system
depends on the logic to use the codes of the preceding items in the production line as
the body of the item codes used for subsequent production phases. Also the body of
an item code is to give the information about the technical and operational origin of
the item. Each character in an item code means a specific property for a distinct item.

Figure III.1 Company Part Coding System

A 15-character long item code corresponds to a final product which is a

packaged amount of paint. A semi-product which is not packaged but has gone
through all the production operations has an 11-character long item code that is
without the 4-character packaging code. The first 6 character of the code is the
generic data for both the semi and final products that represents the technical features
of the paint.

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 Similar coding techniques are used for all the other items or entities of the
company, like raw materials (5 char), bases (8 chars) and pastes (6 chars), customers
and suppliers (5 char), etc., all of which could be deciphered into their own features
and global meanings.

III.3.2. BOM Data

The bill of material is the structure of an end item in order to calculate the net
requirements for its components. As illustrated in the graphical tree structure in
Appendix-6, packaged unit of paint ready to be sold is called a product and consists
of lower level materials with different codes within the ERP system:

• Raw materials (purchased chemicals, packaging materials)

• Bases and pastes (sub-assembly paint productions)
• Fictive materials (non-existing bases that are just used as refrain in the BOM
structure, which simplifies the structure with summarizing a portion of the
BOM under a distinct material code. The user is able to screen the indented
content of that BOM or just reflect it as a single BOM line.)
• Semi-products(end product paint that is ready to be packaged)

Figure III.2 Production Process Analysis and Process Elements

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 Each single line in a BOM includes specific data for the overall values related
to the manufactured item:

• The code of the item consumed, which specifies the material used either a raw
material or sub assembly. Once the item code of the related material is
specified in a BOM line, relational database management system (RDBMS)
enables the use of all the data on the master item table for that item.
• The quantity of the item consumed, with the unit code used like KG or LT.
• Operation number with which the BOM line goes into the manufacturing
• The route number that the operation of the BOM line belongs to
• Scrap factor as %
• Inventory location that the material reservation is performed on, etc.

In fact the numerical values defined in the BOM structure are just coefficients,
not the real values. Each item that is manufactured in the company is assigned a base
BOM quantity, which is an artificial value that could be thought as a one-lot
manufacturing quantity. The duty of the BOM is defining the ratio of each component
within this manufactured quantity over the base BOM quantity. The figure shows a
sample BOM version and the related BOM lines. The quantities entered here for the
BOM lines totals a quantity of 1000 kg, which is the standard base BOM quantity in
the system for the manufactured paint to be sold. It is the manufacturing orders that
work on the real quantities. For example, when the BOM quantity of a single BOM
line is 312 kg (the first BOM line in the figure) and the base BOM quantity is 1000
kg., then the real consumption of that material in a manufacturing order of 500 kg of
the end product will be: (312/1000) * 500 = 156 kg. When a manufacturing order is
released the system calculates the real quantities of material requirements via the
ratios expressed in the BOM data. (Figure III.3)

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Figure III.3 Sample Bill of Materials (BOM)

The figure below is an example for a multi-level indented BOM structure

analysis. For a 1000 kg manufacturing of the product, the report gives out the net
requirements of a BOM revision for each of the materials used in the manufacturing
phases along the BOM levels. So at last a fully integrated BOM tree is generated. As
the level numbers are increasing in the tree, the material and quantity content of each
sub-assembly is expanded together with the operation data that each material quantity
goes into manufacturing. The last BOM level for each sub-assembly in the indented
BOM structure includes only the raw materials.

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Figure III.4 Sample for a multi-level indented BOM structure analysis

III.3.3. Operation Data

Beyond the quantitative data used in BOM programs, operations master table is
the other key data extension for the manufacturing information of the item. Each
BOM line in an item’s BOM tree is entered to the system with a specific route and
operation number. There is an operation pool for each item which is divided into
routes belonging to different BOM revisions. The data on an operation record is
known as the design data, prescribing the methods, machinery, time, labor force
factors for the manufacturing operations. The operation master table includes these
basic data:

• Item number that the operation is performed on

• Operation & route number

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 • Operation text ID simply prescribing the content of the operation to be
performed
• Flow & manufacturing group that the operation belongs to
• Tools or machines to be used in the operation with their system codes
• Setup time consumed & crew to be used, determining how long and how
many man-hour it takes to prepare resources before work can commence.
• Unit time consumed & crew to be used, determining how long and how many
man-hours it takes to manufacture a single unit of the item.

Figure III.5 Sample Operations List for Paint Production

III.3.4. Master Production Scheduling (MPS)

The first deliverable for the company production planning is a control list that
expresses the customer order remainder quantities that are to be met with the MPS.
The control list gives the total of the customer order quantities but the production plan
is driven with both the demands from the sales department and the management of the
production planner. The production planner coordinates the priorities to the most
critical product items according to the departmental functions that influence the shape
of the MPS. But the manipulation of the planner on MPS takes place firstly in the
phase of deciding to perform either a made-to-order or made-to-stock production
plan, and secondly in the phase of dividing the planning period into time fences and
creating the daily production plans.

The quantities arise from the demands but they are not the demands. The
quantities expressed in the report are the values for each distinct item to be produced,
that means that quantities are needed to be produced in the related planning period.
The company is working as made-to-order.

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 The MPS report given in the Appendix-5 is one of the basic MPS reports of the
company and includes the production schedule generated by the ERP system for one-
month planning horizon. It includes the planned production quantities for each end
item of the company. The master scheduler is then due to divide this schedule into
time fences of week and then days. The MPS is updated continuously. When the
current time period is over, the next period becomes the current one and a new period
enters the planning horizon.

When calculating the quantities to be produced for each end item, the company
gets on the on-hand inventory, on-order inventory and customer order remainders. If
the MPS is prepared for the production of the open customer orders then the period
budget will be calculated with the following formula. When the production is
performed both for meeting the customer order remainders and also for the stock,
then the scheduler is due to take the security stock levels into account and add the
security levels to the budget quantity. So the quantities in an MPS are a combination
of the customer orders and the demand forecasts.

Period Budget = Customer Order Remainders + (Security Stock)

– On hand inventory – On order inventory

III.3.5. Lot Sizes

The ERP system used in the company enables different lot-sizing techniques
but the decision of which methodology is to be used is parallel to the managerial
strategies and proposed financial applications. But today’s economical issues and
market challenges drives the managers to think a more asset and money oriented way
of operational functions within the companies. The manufacturing firms are keen to
take less financial risks on their on-going operational lives.

Besides that, many investment decisions like lot-sizes used in the production
and purchase orders are shaped according to the manufacturing, energy consumption
and setup issues of each separate industry. As being able to be called as belonging to
the process industry, the paint production sector differs in many ways from the other
manufacturing companies. Because of the low costs of process plant setup operations

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and high costs of raw materials such as chemicals and petroleum products, the
company mostly prefers not to keep stock and produce or purchase the only net
requirements arising from the customer orders. But seasonal changes in the market
for the product demands force the planners to shift to other manufacturing visions.
When keeping higher stocks is necessary as the customer demands increases, the lot-
sizes have to meet longer periods of requirements. Also some unexpected market
situations or legal restrictions for the raw materials that could cause shortage of that
material and interrupt the manufacturing operations are another decision factor for the
lot-sizes in purchasing.

III.3.6. Safety Stock

Safety stock level is a key consideration for the company inventory

management. The data fields on the inventory items master file are the “SS day” and
the “SS Level”. Security stock day is the number of days which the security stock will
be kept for. The security stock day can be entered manually to the system, and the
automatic update of the “SS day” could be disabled. Therefore the SS Day will be
only user-controlled. Or SS Day calculation could be left totally to the ERP program
which will perform that related with the security stock type and the ABC codes.

SS day value is calculated by the user manually according to the difficulties of

obtaining and keeping for the materials, cost of the materials, etc. When this
calculation is left to the computer, MRP is processed forward in the schedule day by
day according to the created dependent item demand. For each calculated day
requirement total is reduced from the inventory level and inventory quantity of the
material is observed either to fall under the security level or not. Security stock level
can be also determined by the managerial intervention or by the computer. The
calculation formula is:
Security Stock = Annual Demand Forecast / Year day number * Security Stock Days

For example; for an item with 10000 units of annual (256 work-days) demand
forecast, and a 14 of security stock day, the security stock level will be:
= 10000 / 256 * 14 = 546 units

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III.3.7. Lead Times

The lead-time data that the MRP system especially contributes with are the
purchasing and manufacturing lead times. The objective of the ERP system is to
maintain a start date for manufacturing and purchase orders. This is the latest date the
requirement can be resolved before it causes problems for purchasing/manufacturing.
For purchased items it is, in principle, due date – lead time. This is the latest date that
you can enter the purchase order and you receive delivery by the due date. For
manufacturing orders, this is the date that the manufacturing order must be started in
order to be finished in time.

The ERP system’s functionality in order to estimate accurate lead times is

possible with firstly determining the actual throughput times for both the
manufacturing and purchasing orders. These throughput times are used for calculating
the start times for the orders and they are an important factor for establishing accurate
lead times.

III.3.7.1. Purchasing Lead Times

In purchasing, the lead times are evaluated with the purchase agreements. The
lead time in purchasing is the time in number of days from when a need arises to
when it can be remedied.
The purchase agreement refers to the total lead time, i.e.:
• administrative lead time
• lead time by supplier
• transport time, and
• extra lead time (inspections, checks ...)

Lead time on the item's inventory balance record (inventory location) is updated
automatically from the purchase agreement marked as the main agreement and is used
to calculate the availability. You can receive the date of each step in the lead time on
purchase orders and requisitions.

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 An administrator’s duty within the system is specifying on how you want to
take the lead times into account when creating purchase proposals. The current
system uses the lead time data in order to estimate the dispatch times and purchase
plans with the following formulas:

Dispatch Time = Today’s date + Lead time for the purchase agreement

Purchase Plan = Current balance + Received deliveries

- Dispatches within the lead time + X number of days against SS

Figure III.6 Lead time data source for purchased material

III.3.7.2. Manufacturing Lead Times

Manufacturing lead times are associated with the calendar period for operations
or items. When creating work orders, these values are calculated based on the number
of units to be manufactured. The throughput time of manufacturing is made up of
queue time, setup time and work time (unit time). The work time is calculated
according to the quantity to manufacture times the operation time to manufacture one
unit. After the reporting of the manufacturing orders, specific throughput times are
calculated for each semi or final product passing through the manufacturing process.

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 Manufacturing lead times are a key input for the MRP system. When a
requirement arises for an end item the system should calculate the time needed to give
this item out to stock from the manufacturing process. This time is surely the
difference between the dispatch time of the manufacturing order and the latest time
for the manufacturing order to be initialized.

For a company in a make to stock manufacturing environment the stock levels

are the decision factor when and what to produce. At this point the lead times answers
the “when” question. The actual manufacturing times and the lead times are
compared in order to measure the performance for the manufacturing operations. The
level of accuracy for the lead times directly influences the time difference between
the actual and planned dispatch times. Historical manufacturing order data helps the
administrator to force the new operations parallel to the general manufacturing
planning, and try to overcome the manufacturing orders and related item’s
manufacturing design issues, which show deviations from the planned lead times.

III.3.8. MRP Process

The result of the material requirements planning operation is highly related

with especially the purchasing department. Because the net requirements of a
production plan will anyway be met by the purchase of the raw materials. These
material needs are evaluated either according to the daily production schedules or
according to the monthly reflection of the annual sales budget. A purchasing decision
will be performed under the light of these circumstances.

Daily material requirements planning operations are performed by the

production planner according to the executive manager’s decisions. Although the
company is manufacturing with a make-to-stock principle, the manufacturing priority
belongs to the customer orders. So the production planner is firstly due to examine
the reports that gives out the quantities of the customer order remainders ordered
according to the customer order dates.

The MRP run performed within the system both gives out the MPS according to
the selected planning method and the net requirements of the materials for that

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production plan. Master production scheduling is shaped with two different
approaches which are make-to-order and make-to-stock decisions. In order to apply
the approach to the manufacturing plan, the system is simplified to parametric
decision controls that are used when the MRP program is operated.

MRP program is run for a list of all the end items. The production planner
generally operates the MRP program on a list of all the end items manufactured in the
company. But it is also possible to limit that run with just only one item or on a
definite product group(s). Then the master schedule will be calculated for the related
product selection set and only the requirements for this set will be calculated.

In the next step, parametric MRP run is performed according to those decisions;

1.Normal: This is the standard application in the MRP system. The

manufacturing and the requirements calculation will performed for the items
that have fallen under the security stock levels. If the following condition is
valid, then the inventory levels of these items will be equalized to the security
level.
(inventory + planned production) – (customer orders) < security stock
2. 0 remainder / 0 stock: Customer orders and inventory levels are not
taken into account. The production schedule is created only for the security
levels into to examine the security stock quantities.
3.Security level: Current production orders are not taken account and the
production schedule is created in order to catch the security levels. The
production quantities are calculated for the items where;
inventory < security stock
4.The production schedule will be created just for the items that have
remainders. The production quantities will be calculated for these items in
order to catch their security levels.
5.The production schedule will be created just for the remainders
6.Only the items that have remainders will be determined first. Then among
these set of items, the production schedule will include the items that do not
have remainders but are under the security levels and offers to catch the

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 security levels for them. By the way the excess production occurring because
of the lot-sizes is oriented to the specified items.

In the daily production planning procedure, the planner starts the operation by
running the MRP program with the fifth method and the production schedule is
created just for the remainders. Because the purchasing department has to determine
the raw materials that will have insufficient inventory levels when the production is
performed for the customer remainders. The report that will be taken after this
calculation is list of the raw materials that have purchase requirements. (Appendix 4)
The report therefore presents a purchasing advice to the purchasing experts. The
materials in this report are the ones whose planned inventory level is under the
security stock level. The report also includes the equivalents of each of these
materials but their levels are not taken into calculation. If the quantity of the
equivalent material is sufficient, the purchase decision is taken by the authorized
individuals.

The meaning of each column in the purchase plan is as follows;

A = Order quantity = the offered quantity of the material to be purchased.

The security stock days are also determined and assigned to the inventory
record of the raw materials. Order quantity will be calculated from the order
day. The order day for a raw material is the period of one purchase order to be
finished; = annual demand forecast / year day number * order day number
B = Requirement = Planned inventory (current inventory – planned order
releases + planned order receipts) – MRP inventory (Material need of the
remainders) – security stock quantity
C = Current inventory level
D = planned order releases (reserved quantity of the raw material on the
production orders)
E = Planned order receipts (the quantity of the material order given to the
suppliers but not received yet)
F = MRP inventory (material requirement of the product order remainders)
G = Security stock quantities and the SS days
H = Order day number

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 After running the MRP program for the remainders and giving the purchasing
advice to the purchasing department, the production planner will make other runs
according to his/her need. But before that the planner can take the production
schedule which is listed according to the items that have remainders. The daily
production schedule can be decided according to the outputs of that report which will
differ from each other by the type of the MRP run.

III.4. Traditional Cost Accounting System

III.4.1. Existing Cost Accounting System

Before the ERP system has been implemented in the company, the very early
cost accounting approach for the company has been consisting of a volume based
cost allocation method. All the indirect and overhead costs of the company including
the general production and management costs have been accumulated in a single cost
allocation pool which is then allocated to the company finished products. The sum of
the indirect costs accumulated in this single cost pool was then distributed to the final
products according to the yearly production volumes. Then the only cost allocation
had been selected as production volumes in liters. The production volumes were also
representing the related sale volumes of the products in a way but this single
allocation base was causing a meaningless distribution for most of the cost items.
The role of the system was only giving out a proposal chart for the finished product
items for the executive management and then the sale prices were determined with a
high management interaction and manipulations after a detailed financial
comprehension. An example imaginary chart is given in the appendix for the product
unit costs of the company if this volume based allocation method had been used for
the year 2004.

III.4.2. Calculation of Product Costs with ERP Data

The current ERP software used in the company was implemented in 2002 and
it has been started to operate by the year 2003. The application development and
programming environment of the ERP system is available to implement new

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business flow and operation definitions to the system. Any possible reengineering
made for the business processes could be reflected to corporate application level with
the appropriate programming and computing applications implemented to the ERP
software program.

The product costs calculated in the current ERP system consist of:

• Direct Material Costs

• Direct Labor Costs
• Indirect Costs

The biggest advantage of the ERP data in product costing process is the use of
the MRP system and the operation data. The MRP system allows the production
operations keep the log data for each distinct production order including the
information for the quantity of the direct materials through the BOMs and the
operation direct labor time within the ERP system. So it is possible to track
consumption values for each production group. The similar advantages also appear
for other operative units in the company. Quality control operations, processed
purchasing orders, product sales and many other operation data are kept in the ERP
system available to access at any time for programmatic and managerial feedback.

When designing the cost accounting strategy for the new ERP system it was
decided to build the costing mentality of the indirect costs depending on the labor
usage. This corresponds to an approach which tells that nearly all the cost consuming
resources within the company’s operating life are related in a way with the total labor
consumed for each product. This strategic decision on product costing covers the
historical cost accounting approach for both the company and the Turkish
manufacturing sector when it’s thought that direct labor has been making up the
greatest part of the manufacturing costs in the usual production structure of the
company. Then the allocation base of the current cost accounting system has been
the man-hour direct labor value for the indirect costs.

Traditional product costing calculations are performed in the ERP system

with a phased algorithm that accumulates the actual costs of each product that appear

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as a result of the production operations. The direct material and labor costs are
summed up on each product code as the fixed costs of the ERP system.

Total Fixed Costs Direct Direct

per Product Group = Material Costs + Labor Costs

Fixed Cost Total Fixed Costs Production Quantity

per unit product = per product group / for Product Group (kg)

Total Indirect Costs Total Indirect Man-Hour Direct Labor per

Product Group = Costs * Share per Product Group

Then the indirect costs calculated for a definite accounting period are gained
from the accumulated financial accounts and distributed to the product groups with
the man-hour ratios that each product group take from the total direct labor of that
accounting period. The chart in the Appendix gives out these unit costs calculated in
the current costing algorithm built for the ERP system.

III.5. Implementation of ABC System

ABC costing methodology is decided to be implemented in the company with

the help of the ERP data in order to gather more accurate product costs. The aim of
this study is to prove the strength of an ABC approach in product costing covering
the real company activities by selecting more appropriate cost drivers related with
each activity group. When the ABC study is finished the new product costs could be
presented for executive evaluation and the affect of a different costing approach on
the final product costs and sale prices will be observed.

Before implementing the activity based costing methodology appropriateness

of the study is evaluated and the application criteria are determined. When the
company production structure is evaluated, it can be said that the company has a
continuous production process. Like many of the companies standing in the chemical
market, the product variations are high and production specifications of the finished
items show great differences. The new production types that are driven by the market
demands need intense studies on the proposed products and high marketing and
research investments. The company has to make robust costing and pricing studies

85
and feasibility investigations in order to either enter the market with the new
products.

Another reason that exposes the need for an ABC approach is the future
investment and reengineering decisions on the company processes related with the
desire to have a more automated and reliable production infrastructure. New
production establishment and machinery investments considered for the middle term
expansion strategies inevitably change the business structure and the cost types.
Evident increases in the establishment and machinery expenses, general management
and production costs will raise the need to reevaluate the costing structure.

The ABC analysis study is applied on the year 2004 accounting data since all
the accounting transactions have been finished for that period. Also some cost items
are not homogenous among the accounting periods because the company meets some
of the financial liabilities in specific periods of an accounting year so the accounting
period of that study is tried to be used as long as possible.

In ABC study it is decided to apply the new distribution methodology not

only for the general production costs but also for the general management costs. The
reason for this application is first of all applying the activity based costing
philosophy covering the selling costs of the final product and comparing the unit sale
prices of each costing methodology.

The company produces over 80 product groups, namely paint types, with
different color and filling sizes. Then the company gives a picture of producing
nearly a thousand of finished products. In this ABC study the unit of product is
selected as kilograms, which states the production amount of unpackaged paint. So
the color and size variations could be eliminated for gathering activity costs.

In the first stage of the study, the company activities are determined as
covering all the production and management operations and functions of the
company. Nine different activities are determined for the company. These activities
are then assigned with appropriate cost drivers that would be used the cost allocation
bases of the activity costs on the final products.

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 In the second stage of the study the resource costs have been distributed to the
cost pools created for each activity. Most of the cost documents are the related
invoices billed to the company and these invoices are immediately related with the
appropriate system accounts. But some of the resource costs such as energy and
water consumption, internet and rent costs are shared to the departments with the
primary cost allocations decided by the company management. These departmental
resource costs are then easy to be transferred to the activity cost pools since each
departmental operation is interrelated with the selected company activities.

The accumulated costs in nine activity pools are then distributed to the
product groups with the activity distribution ratios calculated for the overall product
groups. Total activity costs representing the indirect costs plus the fixed costs
including the direct labor and material costs have made up the total cost for each
product group. The unit costs are then calculated by the division of product group
costs to the production volume of that group.

III.5.1. Determination of the Activities and Cost Drivers

The activities determined for the proposed ABC system are explained in the
following section.

Table III.1 Determined activities

NO Activity
1 Stocking and Transport
2 Production Plant Activities
3 Quality Control
4 Establishment Repair & Maintenance
5 Machinery Repair & Maintenance
6 Production Plant Management
7 Purchasing
8 Marketing and Sales
9 General Management and Administration

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III.5.1.1. Stocking and Transport

The company has to keep a variable level of stock for both the raw materials
and the finished products. These levels vary according to the demands arising from
either the production or customer orders.

The activity includes all the work performed by the transport of the materials
between these inventory locations and the procedural upkeeping, counting, stowing
and organizing activities of the materials at these locations.

Stocking and transport activities are carried on by the warehouse personnel of

two different warehouses, which are the raw material and finished goods warehouse.
There are also some other imaginary warehouses or material stock locations for the
semi-finished products and other chemicals as bases and pastes.

The transport of the materials is performed on the raw materials for carrying
from the warehouse to the production line and on the finished goods for carrying
from the production line to the warehouse. The transportation of the materials are
performed by the forklifts and palettes with definite amounts calculated according to
the weight or volumes of the liquid materials or number of pieces. Also some liquid
materials are added to the paint through some pipes and lines but this type of material
transportation is not the subject of this activity but the production plant activities.

The expenses of these activities are mainly based on the expenditures for the
warehouse personnel, the usage cost of the warehouse machinery and the rent
percentage of the warehouse area.

The warehouse staff is due to perform the material transportation between the
inventory locations and the product shipping preparations due to the customer
product orders. More the transaction occurs for the product groups the more these
groups get share from the stock and transport activity costs. Also the product
volumes for each transaction increase the force and time consumed. The current ERP
software program offers the possibility to group the semi-finished and finished

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product transactions. So the cost driver for this activity is selected as the total
transaction volume for each product group. Because the raw material stock
transactions are directly proportional to the production volumes of the product
groups these raw material transactions are not taken into deal for this activity.

Stock transaction types for the semi-finished and finished products are selected
as follows:

• Customer order releases from the product warehouse

• Entry from production to product and semi-finished product warehouses
• Entry of the spoilt paint from product warehouse to production for reuse
• Sample and present product releases to customers and individuals
• Product returns from customers for technical and commercial reasons
• Paint release from the product warehouse for the development & research
consumption

Unit for this activity is simply the “kg” for transactions.

III.5.1.2. Production Plant Activities

This activity includes all the other expenses made during the production stages
except the direct labor and raw material costs. When the company has enough
amounts of the raw material and the work force as the direct labor, the production is
ready to get started but we also need some other secondary materials and are due to
some other expenses in order to perform the production and make together all we
have.

The activity includes the cost of the secondary materials that cannot be named
as a raw material but used during the production such as water, some packaging
materials, special consumption materials, etc. The other important production plant
expenses are the electricity consumption and some secondary shipping expenses.

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 All the supportive activities and expenses in the production plant aim to fully
finish the production phase. These costs are related with the total work force
consumed for each product group. The work force consumption depends on the
number of the employees used in the production operations and the time
consumption of these operations. The ERP software program keeps the track of the
processed production operations with the employee and time data. The production
prescriptions include the standard values for the employee and time data but some
modifications for the production stages may change these values with different actual
data. The final data for the operations are reported by the production management
staff and these values are easy to be analyzed by the ERP system operators via the
management reports.

The unit for this activity is therefore a “man-hour” consumption value

expressing the number of hours that a single worker can perform within the
production operations.

III.5.1.3. Quality Control

During and after the production stages some amounts of semi-finished or

finished products are selected as sample in order to apply the quality control tests for
approving the appropriateness of the overall amount according to the quality
parameters defined by the company. Similar quality measures are also described for
the purchased raw materials and the purchase approvals and stock entry of the raw
materials are made according to these test.

In either side of the quality tests, different quality measures and tests are
applied to different materials within different time fences, and the results are taken
with different units. The quality control operations are applied to the sample amounts
of products taken from a production batch or a purchase batch for raw materials.

The main expenses in the quality control operations are easy to differ from the
other activities performed in the production. As an independent department within
the company, rent percentages, quality control personnel expenses, secondary

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materials used during the tests, energy and periodic attention and repairs on the
quality control machines are the outstanding cost items for the quality control
activities, whereas it also gets some portion from the other establishment and
operation based expenses.

Because the technical specifications vary among all the product groups they are
applied different quality control operations with different time consumptions. All the
cost that is made for the quality control operations is due to how much the quality
control department shares the efforts on each product group. So the cost driver for
this activity is selected as the total hours consumed for the quality control operations
for each product group. Similar to the stock and transport activities the raw material
quality control operations is evaluated as being dependent on the product quality
controls so they are not taken into deal for the cost driver determination.

The unit for this activity is the total “hour” consumed for each product group.

III.5.1.4. Establishment Repair & Maintenance

According to the production variations and development operations, some

modifications may be necessary in the architecture of the buildings, design of the
production line and the production plant. These modifications are carried on the by
the company employees or the subcontractors. Also some repairs may be necessary
for the buildings due to the depreciation.

Security, cleanness and warming, electricity and water consumption of the

buildings are the other expenses in order to keep the establishment and buildings live
and working. Also the buildings of the production plant take percent from the overall
rent payments and this expense is also related to the establishment costs.

All the establishment repair and maintenance activities in the company are
related with processed operations for each product group. The establishment is
supported and managed for performing the production operations so the total

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operation time consumed for each product group determines how much each product
group take share from the establishment repair and maintenance costs.

The unit for this activity is the number of total operation time as “hour” for
product groups.

III.5.1.5. Machinery Repair & Maintenance

The costs due to the machines used in the production phases are the repair and
maintenance expenses and the overall owning cost of these machines. Most of the
machines used in the production are gained to the company with leasing so each
machine has independent and fixed monthly installments paid to the related banks or
property owners. Also the periodic repairs and maintenance works of the machines
are executed by subcontractors with whom the company has made specific repair and
maintenance agreements.

The depreciation of the machines in production is due to how much paint has
been produced in the production plant and how much paint production has passed
from the machines. The cost driver for this activity could be selected as the
production volume processed in each machine but the standard resource consumption
for each machine does not depend on the production volume passing from these
machines. But each distinct setup for each machine determines the resource usage
and depreciation ratio of this machine. The ERP software keeps the data for each
production stage within the production routes and machinery use.

The unit for this activity is the “count” for the setups performed in each
machine. The setups of the machines for the production use of each product group
give a single setup count as a cost driver.

III.5.1.6. Production Plant Management

In order to carry on the production activities and the material transformation

taking place due to production functions, there is a management staff giving the

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mission critical production decisions and controlling the production plant activities.
The payments of the staff are the biggest item of the production plant management
costs. Also this staff consumes some other resources of the company such as
electricity, water, security, transportation, telecommunication facilities.

The management staff of production is divided into some sub departments that
are specific to the production types and production groups. The production executed
in the company is divided into two establishments which are water based production
and solvent based production, so each establishment has its own management staff.

The third group of which the expense items can be evaluated under production
plant management costs is the social facilities and care department. The functions of
this department and related expense items are evaluated as supporting the production
management so they are added to this activity’s cost pool.

The cost evaluation of managerial activities for production is hard to integrate

with the production variations. But it’s a truth that the managerial efforts are highly
focused on the outstanding product groups which are high in sales. The cost of the
managerial activities take place after the company pays for the raw material and
direct labor expenses. The production managers apply their value on the products
over the fixed costs and then the product is ready to be sold with their sales price
including the profit margin. Then the production plant management cost is suitable to
be formulated as the difference between the sales endorsements amount of a product
group and the fixed costs of that product group including the raw material and direct
labor costs.

Value Added for Product = Total Endorsement – Raw Material Cost

– Direct Labor Cost

The unit for this activity is the “TL” price amounts for value add for each
product group.

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III.5.1.7. Purchasing

This cost pool includes all the expense items made for or by the purchasing
staff. The general management accounts with the account number 73000 are mostly
hard to distribute to the product groups but because the purchasing activities depend
on the material types which are consumed by the product groups, purchasing is taken
as a distinct cost pool by the proposed activity based costing system.

The company purchases a high range of chemicals and also the packaging
materials as raw materials. The purchasing procedure begins with the issue of the
purchase order and finishes with the arrival of the raw materials to the company. The
purchasing department staff is due to all the control and management activities
within this process. The payments made to the staff and other various expense items
of the purchasing department are added to this cost pool. Also the purchase process
executed for the raw materials that are imported from abroad have some additional
outstanding expense amounts. These and similar expenses increase the ratio of the
overall purchasing costs.

A complex cost driver is developed for the purchasing activity. Since the
purchasing costs depends on the processed purchasing orders for each product group,
it’s necessary to find an order number for each group. But it’s certain that the
purchasing activity is applied for the raw materials, not for the products. So a model
is developed to transfer the raw material purchasing order numbers to the finished
products.

Each product group is known how much of the raw materials to use in the
given cost period, namely the year 2004. Then first the number of purchase orders
for each raw material in this cost period is determined. Then a list of balance
multiplier for each raw material is gained from the purchasing department managers.
This list expresses the difficulty level of processing the purchasing order for each
raw material. These multipliers gave a more realistic number for the purchase orders
for each raw material after multiplying them with the actual order numbers and
getting a balanced order number. Also we have the amount data of the raw materials

94
that has arrived to the company in units of KG. Then for each distinct balanced raw
material order we could gain an average arrival amount which could be named as a
standard arrival batch amount.

The next step of the model involves the consumed amount of the raw materials
in production for each product group. Each consumed amount of raw material is then
converted to a balanced order number by dividing the consumption amount of the
raw material to the average arrival amount of that raw material. When we sum up the
balanced order number created for each raw material use under a single product
group, we reach a balanced purchase order number for each product group, which is
the selected cost driver for this activity.

The unit for this activity is balanced purchase order “count” for each product
group.

III.5.1.8. Marketing and Sales

This cost pool includes large amounts of expenses of the central marketing and
the sales departments and the regional sale offices. The sale network of the company
both includes the management costs due to the payments and executive expenditures
of the sale staff in the offices, like sales department managers, sales representatives,
product order process and marketing expenses, and so on. Also the regional sale
representatives working mobile and contacting with the customers have their own
payments and consume various supportive facilities like transportation, travel
allowances, mansion expenditures and so on. Fixed expenses of the sales and
marketing departments are also added to this cost pool. In summary, all the expenses
that help, support or assist the sale process make up this activity group.

Sales and marketing activities generally do not focus on specific product

groups within the company’s sales vision and standards or these specific sales
activities only take place seasonally. The effort of the marketing and sales
department changes with the effort on the process of the sales orders. As the sales
department achieves its goals by selling the company products, the marketing

95
activities also finds an end on the related products. The marketing and sales costs are
seen highly dependent on the sale and order processing counts of each product group.
So the total of the following sales data gives us the cost driver for this activity:

• Total processed customer orders for product group

• Total processed actual sales number related to sales invoices
• Total number of return dispatches for the product returns from the customer

The unit of this activity is the “number” of the total for the orders, invoices and
dispatches.

III.5.1.9. General Management and Administration

The above activity groups and the related cost pools cover most of the
expenses of the company. Each cost group has their own cost drivers which
determine the distribution key of the cost amounts to the product groups. All the
other cost items which could not be grouped by these activities are collected under
one single cost group and they are not assigned one of the determined activity
groups.

The cost driver for this imaginary activity is selected equally with the single
cost driver of the current costing system. So the evaluation of the two different
costing systems is left alone only on the predefined 8 activity groups. This last
activity group is thought only to complete the whole indirect costs to sum up the
overall value.

The cost driver is the same with the current costing system and also with the
second activity group: “man-hour”

96
III.5.2. Determination and Allocation of the Cost Types to
the Activities

III.5.2.1. Accounting Information System

In the accounting system of the company, the total indirect costs of a specific
accounting period is the sum of the expenditures made by the company to carry on
the production, sales and all the other management and execution activities. These
expenditures don’t include the direct labor and direct material costs of the related
accounting period. The invoiced costs are entered to the accounting system by the
accounting staff with the codes constituted for the general ledger. The accounts that
make up the general ledger include the cost center, department, cost type and staff
information in a phased manner. It is possible to distinguish the cost items according
to where and how they are located. Account levels in the general ledger correspond
to a part of the account codes determined in the general ledger and specific
information related with this code. The invoiced costs are integrated with the
accounting system through these account codes and ledger levels.

Table III.2 General ledger levels

General Ledger Information

2. level accounts Cost Centers
3. level accounts Departments
4. level accounts Cost Types
5. level accounts Staff

When grouping and allocating the period costs for ABC study, the key to
identify the cost items mainly depend on the department that the expenditure is made
for and the type of the expenditure. This information for the cost items helps the
expenses to be categorized and link them with the determined activities. The below
table gives the expense types created for the ABC study from the 4.level accounts
placed in the general ledger.

97
Table III.3 Expense Types

EXPENSE TYPES
1 Advertisement 45 Private Vehicle Insurance
2 Bonus Payments 46 Product Advertisements
3 Campaign Advertisement 47 Product Import
4 Cleaning 48 Product Package Shrinks
5 Customer Services Cargo and Post 49 Product Samples Cargo and Post
6 Customer Training and Seminars 50 Product Shelfs
7 Electricity 51 Production Building Repairs
8 Establishment and Building Organization 52 Production Machines Depreciation
9 Export Customs Expenses 53 Production Machines Leasing
10 Export Rate of Exchange Differences 54 Production Machines Repair & Maintenance
11 Extra Work Payments 55 Promotion
12 Financing 56 Purchasing Agreements Cargo and Post
13 Food 57 Purchasing Bank Expenses
14 Fuel Oil 58 Purchasing Department Repairs
15 Gasoline 59 Raw Material Import
16 Health 60 Regional Travel
17 Heating 61 Rent
18 Import Customs Expenses 62 Representing and Hosting for Import Activities
Representing and Hosting for Management
19 Import Rate of Exchange Differences 63
Relations
20 Incentive Payments 64 Representing and Hosting for Sales
21 Informing Compensation 65 Salaries
22 Insurance Expenses 66 Sales & Marketing Department Repairs
23 International Travel 67 Sales Bank Expenses
24 Internet 68 Sales Consulting
25 Kitchen 69 Sales Fleet Vehicles Depreciation
26 Laboratory Devices Repair &Maintenance 70 Sales Fleet Vehicles Repair &Maintenance
27 Law Court and Notary Public 71 Sales Vehicles Renting
28 Legal Donations 72 Sample Product and Present Expenses
29 Legal Stamp 73 Secondary Materials
30 Management Bank Expenses 74 Security
31 Management Consulting 75 Seniority Compensation
32 Management Vehicles Leasing 76 Shipping
33 Management Vehicles Repairs 77 Social Aid
Material Transportation Vehicles Repair &
34 78 SSK Insurance Share
Maintenance
35 Membership Fee and Registration 79 Stationary Expenses
36 Office Buildings Restorations 80 Stock Vehicles Renting
37 Office Documents Cargo and Post 81 Stocking Vehicles Leasing
38 Office Inventory Depreciation 82 Telephone & Fax
39 Office Inventory Expenses 83 Test Materials Packaging
40 Office Tools Repair & Maintenance 84 Traffic Insurance
41 Other Management Expenses 85 Vehicle Tax and Mortar
Warehouse Transportation Vehicles Repair &
42 Out of Cash Discounts 86
Maintenance
43 Personnel Training and Seminars 87 Water
44 Personnel Transportation

98
III.5.2.2. Primary Cost Allocation

After the activities are determined the next step is calculating the activity
costs for the ABC system which is called the primary cost allocation. After all of the
expense types and categories are determined as covering all the period expenses, it is
necessary to relate these expenses with the selected activities.

Although some expenses could be related with more than one activity within an
ABC study, each of the expense types expressed in the Table III.3 are tried to be
determined in order to be transferred to their related activity directly. So the expense
types are listed in the possible maximum detail as not to depend on more than one
activity except the electricity, water, internet, heating and rent expenses. Allocation
of these five expenses to the activities is performed by predefined cost allocation
bases underlined by the management experiences, which are;

• Rent Expense : Company land used in m2

• Electricity Expense: Energy consumed in kHz
• Water Expense : Predetermined constant ratios by experience
• Internet Expense : Number of PCs used
• Heating Expense : Number of heaters used

An annual sum of each of these five expense groups are distributed to the
company departments in the means of the selected primary cost allocation bases
whereas the operational presence of each department matches one of the nine
predefined activities. All the expense types defined in the accounting system are then
grouped into expense categories as shown is Table III.4. These expense categories
are formed according to the experience gained from the accounting system and the
cause-effect relationship of the cost types with the cost objectives.

99
Table III.4 Expense Categories

EXPENSE CATEGORIES
Amortization Costs
Care & Attention Costs
Communication Costs
Electricity Consumption Costs
Execution Costs
Financial Costs
Heating Costs
Internet Costs
Legal Costs
Management Costs
Personnel Costs
Rent Costs
Social Service Costs
Tour & Transportation Costs
Water Consumption Costs

Other expense types which could be directly related to a single department are
summed up into total amounts in order to be shared between the activities. The key
to determine the related activities for each expense total is the accounting
information kept in the system. Expense-department-activity relation is highly
resolved with experience, clear definitions of the activities and the department
operations.

Figure III.7 Stage-1 Cost Allocation

100
 By the way expense totals for each activity cost pool are created. In Appendix-
7 and Appendix-8 tables are presented for allocated expense amounts and the total
cost accumulated for each activity cost pool. The matrix table in the Appendix-10 the
rows shows the allocated expense categories for each activity. The row totals give us
the total allocated expense amounts for each expense category, whereas the column
totals give the total activity cost amounts which are ready to be subjected to the
second level cost allocation.

III.5.3. Allocating Activity Costs to the Product Groups

After finding the final activity costs accumulated in the activity cost pools
second stage of cost allocation take place which is distributing the activity costs
through the cost drivers. The allocation base values are calculated for each activity
according to the cost drivers defined for the activities with the use of the system data
gathered from different modules of the ERP database. These calculated allocation
base values are reported in the table in Appendix11. The below table is a sample for
the calculation of the total man hour for each product group in order to gather the
activity distribution values for Activity-2 production plant activities.

Table III.5 Sample section from the table for the allocation bases

Reported Reported
Group Setup Operation Total Man
Group Name Setup Operation
No Crew Crew Hour
Time Time
011100 TAVAN 209,867 642,633 1.148,000 2.400,000 1.137,317
011101 PLASTIK 140,217 113,617 760,000 1.596,000 271,033
011102 NOSTALGIA 0,583 0,150 6,500 14,000 0,808
............ ............ ............ ............ ............ ............ ............

Table III.6 includes the activity distribution values. Based on the assumption
that products consume activities, each product group gets a portion of the cost
amounts stated for the activities. Cost drivers determine the ratios for each product
group to take a specific share from the total activity costs.

101
Table III.6 Sample section from the table for the activity distribution values

Activity 1 Activity 2 Activity 3

NO PRODUCT NAME Distribution Distribution Distribution ..................
011100 TAVAN 1.113.685 1.137,317 5.069 ..................
011101 PLASTIK 1.130.106 271,033 2.520 ..................
011102 NOSTALGIA 40.231 0,808 50 ..................
.................. ..................... .................. .................. ..................
Overall 45.748.494 16.312 207.914

The sample table below with the real values in Appendix-12 includes the
distributed activity costs on the product groups. For example the activity-1 cost of
product group with the 011100 group code could be calculated as:
Activity cost of product group = Unit Activity Cost * Repeats of cost driver
= (Total Activity Cost / Total cost driver repeats) * Repeats of cost driver
= (327.716.762.428 / 45.748.494) * 1.113.685 = 7.977.820.539

The row totals express the sum of the cost amounts that each product group
gets from the total activity costs. The column totals are the calculated cost amounts
in the activity cost pools. Each column expresses the amount of cost for a single
activity taken by the product groups. Total activity costs for each product group give
the overall indirect expenses made for each product group

Table III.7 Sample section from the table for the calculated activity costs

Total Product
NO PRODUCT NAME Activity 1 Activity 2 Activity 3 .................. Group Costs
011100 TAVAN 7.977.820.539 18.222.173.771 2.905.624.681 .................. 349.318.403.240
011101 PLASTIK 8.095.450.252 4.342.516.594 1.444.500.729 .................. 131.814.862.387
011102 NOSTALGIA 288.194.833 12.951.178 28.660.729 .................. 1.212.787.367
.................. ..................... .................. .................. .................. .................. ..................
Activity Costs 327.716.762.428 261.359.124.041 119.179.335.150 .................. 6.809.034.748.529

III.6. Comparison and Evaluation of the Results : ABC vs.

Traditional System

At the final step of the ABC study traditional systems costs and the ABC study
costs are to be compared in order to realize the cost shifts between the product
groups. Also we could gain proposed sale prices from the new costing system.

102
Table III.8 Sample section from the table for the evaluation of the ABC and traditional
product costs

The above table expresses the final analysis results for the ABC study in order
to be compared with the traditional system costs. The second column corresponds to
the real cost results of the ABC study. Total cost for a product group is in fact the
total of the direct and indirect costs for that group. The aim of the thesis study was to
take the direct costs fixed for both costing study and to bring a new and more
accurate distribution methodology for the indirect costs. Then the second column
equals to the total cost values gained from the ABC study. When the product group
total cost is divided to the production quantity of each product group, the unit cost of
finished item could be found for each product group; the division of the second
column to the first column in the table.
Product group activity cost = Direct Material + Direct Labor + Activity Costs
Unit cost = Product group total cost / Production quantity

...................................................................................................... Sale Price

Profit Margin
...................................................................................................... Final Product Cost
Activity 9
Activity 8
Activity 7
Traditional System Activity 6 ACTIVITY
Indirect Costs (Single Activity 5 COSTS
Cost Allocation Base) Activity 4
Activity 3
Activity 2
Activity 1
...................................................................................................... Fixed Direct Costs
Direct Labor Costs

Direct Material Costs

Figure III.8 Applied ABC Model and the ABC phases

103
 The unit costs for the ABC study in the 3rd column and the traditional costs
in the 4th column are able to be compared with each other in order to see the cost
differences. The difference between these two costs gives us if the current calculated
cost values show great deviations from the actual costs that are established by the
ABC study. Also the sale prices could be gained by adding a specific profit margin
on the unit costs of both costing systems. The detailed analysis of the results is given
in the table placed in the Appendix-13. Table III.9 shows the product groups which
show a difference of more than 1.000.000 TL cost difference per kilogram when the
two product costing methodologies are compared with each other. The absolute
values of the differences between two product cost values are expressed in the last
column of the table. This value indicates the product groups which are necessary to
be recalculated for the product costs.

The ABC model was due to create a more accurate cost allocation method to
the cost items placed in the range between direct cost values and the final product
costs. So for each product group we could create comparison points between two
costing systems after the cost allocation of the indirect costs including the annual
general production and management costs.

Table III.9 Product groups that show the greatest cost differences

Total Cost/KG
Total Cost/KG (Traditional ABC-Traditional Absolute Value of
NO PRODUCT NAME (ABC System) System) Difference Differnce
512101 ISH - ULTRA EMAYE 34.257.362 15.697.377 -18.559.985 18.559.985
011801 ISH - KUFKES 10.396.858 5.638.747 -4.758.111 4.758.111
011102 ISH - NOSTALGIA 5.754.677 2.323.119 -3.431.559 3.431.559
512500 ISH - ULTRA TÝNER 9.865.312 6.621.614 -3.243.697 3.243.697
012300 ISH - BOYA MACUNU 7.251.536 10.016.624 2.765.089 2.765.089
011104 ISH - LIGHT 6.028.034 4.019.643 -2.008.392 2.008.392
033100 SAB - TUTKALLI 4.013.086 2.163.128 -1.849.958 1.849.958
012150 ISH - LITE FLAT 10.200.085 8.692.630 -1.507.455 1.507.455
012600 ISH - SILIZOL 4.954.723 3.784.672 -1.170.051 1.170.051
8001 DOLUMLAR 14.963.245 13.809.114 -1.154.131 1.154.131
012402 ISH - DEKOVER 5.958.540 4.882.587 -1.075.953 1.075.953

104
PART IV

CONCLUSION

ABC is a system which attempts to identify, measure and communicate the

total costs of activities involved in production. It is proposed to overcome the
problems that exist in the traditional cost accounting system which are due to the
inadequate or insufficient use of cost allocation methods.

In the literature review part of this thesis study, an extensive research is

carried on for ABC and ERP compliance. Beside the clear advantages of ABC
systems, an ERP system is tried to be explained as a suitable environment for ABC
implementation with its current production and planning management facilities.

The next step in the thesis study was to prove the applicability of the
implementation of the ABC system in an ERP system used in a production company.
The application company is selected as a paint production company from Turkish
chemical sector. Before deciding the ABC system in this company a detailed activity
and infrastructure analysis has been made. The future tendencies of the company for
production, machinery and establishment investments have been the most important
factors that motivate such a cost study, where these middle term investment plans are
possibly the key for the changes in cost structure of the company.

The ABC methodology is applied step by step into the company’s cost
accounting system by using the accounting data gathered from the ERP system. The
product costs calculated with the ABC system are thought to increase the accuracy of

105
the costing data and directly affect the success of the related sales and management
strategies of the company.

Combination of the ERP and ABC systems seems to be possible according to

the result of this thesis study. As the traditional ERP systems do not allow flexible
cost allocation, ABC studies produce a good alternative for the traditional cost
accounting approaches either as an add-on for the ERP systems or independent
software programs. Also it’s in benefit of the ABC systems to be integrated to the
ERP system when it’s thought that ABC can use the huge database advantage of the
ERP system.

ABC does not only stand for increasing the accuracy of the product or service
cost information but also it’s interpreted as a management philosophy for the overall
corporate culture. Application of the activity based management approach in the
critical managerial functions of an organization is a step for increasing the success of
the organization in achieving the mission. This thesis study provided an insight into
the use of the activity based costing information in making the company managerial
decisions.

The contributions of this thesis study have been proving the impacts of the
activity based costing on managerial decisions, determination of the sales prices, and
eliminating the problems occurring in the traditional cost accounting systems. ABC
methodology is proposed as an appropriate application for the companies in
production sector working with a continuous production process.

106
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109
APPENDICES

APPENDIX-1 CONTEXT LEVEL DATA FLOW DIAGRAM (DFD) FOR

PRODUCTION

APPENDIX -2 DATA FLOW DIAGRAM (DFD) 0 FOR PRODUCTION

APPENDIX -3 MATERIAL REQUIREMENTS PLANNING (MRP)

DIAGRAM

APPENDIX -4 NET REQUIREMENT PLANNING (PURCHASE PLAN)

APPENDIX -5 PRODUCTION PLAN

APPENDIX -6 PRODUCTION PHASES

APPENDIX -7 COST TYPES

APPENDIX -8 OTHER EXPENSES

APPENDIX -9 TRADITIONAL SYSTEM COSTS

APPENDIX -10 FIRST LEVEL COST ALLOCATION AND FINAL

ACTIVITY COSTS MATRIX

APPENDIX -11 ACTIVITY USAGE BY PRODUCTS

APPENDIX -12 ACTIVITY CONSUMPTION PERCENTAGES

APPENDIX -13 SECOND LEVEL COST ALLOCATION

APPENDIX -14 ABC RESULTS AND COMPARISON WITH THE

EXISTING COSTING METHOD

110
APPENDIX-1 Context Level Data Flow
Diagram (DFD) for PRODUCTION

111
APPENDIX-2 DATA FLOW DIAGRAM (DFD) 0 FOR PRODUCTION

112
APPENDIX-3 MATERIAL REQUIREMENTS PLANNING (MRP) DIAGRAM

113
APPENDIX-4 NET REQUIREMENT PLANNING (PURCHASE PLAN)

114
APPENDIX-5 PRODUCTION PLAN 7 /2005
BUDGET SECURITY INV. ORDER PROD. STOCK
QUANTITY STOCK BALANCE QUANTITY PLAN EXCESS

011100000500030 1.561 783 0 249 2.593 0

011100000500040 508 254 0 137 899 0
011100000500060 980 490 0 88 1.558 0
011101000500020 100 50 43 0 107 0
011101000500040 0 0 20 0 0 20
011101000500060 0 0 8 0 0 8
011103000500020 0 0 6 2 0 4
011103000500040 26 13 41 0 0 2
011103000500060 0 0 18 0 0 18
011103050110020 12 6 2 0 16 0
011103050110060 52 26 30 0 48 0
011103050400020 12 6 7 0 11 0
011103050400060 36 18 30 0 24 0
011103051050020 0 0 4 0 0 4
011103051050060 60 30 24 0 66 0
011103051250020 0 0 0 1 1 0
011103051250060 60 30 0 4 94 0
011103052130020 62 31 37 0 56 0
011103052130060 160 80 134 0 106 0
011103052150020 10 5 5 0 10 0
011103052150060 60 30 12 0 78 0
011103052180020 0 0 23 0 0 23
011103052180060 64 32 196 0 0 100
011103052300020 0 0 2 0 0 2
011103052300060 56 28 48 0 36 0
011103053110020 18 9 41 0 0 14
011103053110060 92 46 64 0 74 0
011103053220020 10 5 4 0 11 0
011103053220060 100 50 16 0 134 0
011103053460020 30 15 0 0 45 0
011103053460060 228 114 248 0 94 0
011103054200020 0 0 5 0 0 5
011103054200060 100 50 70 0 80 0
011103054420020 0 0 3 0 0 3
011103054420060 32 16 42 0 6 0
011103054480020 26 13 19 0 20 0
011103054480060 184 92 208 0 68 0
011103055170020 10 5 0 4 19 0
011103055170060 88 44 32 0 100 0
011103055280020 0 0 23 0 0 23
011103055280060 36 18 66 0 0 12
011103056180020 10 5 12 0 3 0
011103056180060 56 28 58 0 26 0
011103103420020 0 0 19 0 0 19
011103103420060 60 30 72 0 18 0
011103103460020 14 7 30 0 0 9

115
APPENDIX-6 PRODUCTION PHASES

RAW MATERIAL

BASES BASES ALCHID

& PASTES STOCKED and FICTIVE

SEMI-FINISHED
PRODUCT

FINISHED PRODUCT

PACKAGING
CARTOON BASES LABELS

PACKAGING
MATERIALS

116
 APPENDIX-7 COST TYPES
RENT COSTS

Activity
Department Rent Cost Metersquare % Activity Activity Cost %
2310 Product Inventory 29.647.378.680 2.778 27,78 1 29.647.378.680 27,78
3310 Quality Control 883.560.120 83 0,83 3 883.560.120 0,83
3100 Production Management 39.349.595.508 3.687 36,87 4 39.349.595.508 36,87
3710 Social Services 6.219.913.320 583 5,83 6 6.219.913.320 5,83
2570 Purchasing 437.405.500 41 0,41 7 437.405.500 0,41
2000 Commerce Management 72.901.000 7 0,07 8
2210 İstanbul Sales 145.802.000 14 0,14 8
2211 İst-Europe Sales 546.757.500 51 0,51 8
2212 İst-Anatolia Sales 619.658.500 58 0,58 8
2213 İst-Technical Sales 36.450.500 3 0,03 8
2231 İzmir -Sales 3.044.871.792 285 2,85 8 24.898.568.457 23,33
2251 Ankara -Sales 8.000.000.000 750 7,50 8
2252 Trabzon -Sales 5.769.230.769 541 5,41 8
2261 Adana -Sales 5.897.435.896 553 5,53 8
2530 Marketing 328.054.500 31 0,31 8
2550 Exporting 437.406.000 41 0,41 8
3320 Res.& Dev. 1.338.462.360 125 1,25 9
1000 General Director 1.749.624.000 164 1,64 9
1100 Quality System 273.378.756 26 0,26 9
1200 Information Tech. 437.406.000 41 0,41 9 5.275.116.872 4,94
4010 Accounting 874.812.000 82 0,82 9
4030 Finance 437.407.000 41 0,41 9
4040 Personnel 164.026.756 15 0,15 9

TOTAL 106.711.538.457 10.000

117
 ELECTRICITY COSTS

Electricity Activity
Department Cost kW/h % Activity Activity Cost %
2310 Product Inventory 77.145.857 28.338 0,08 1 77.145.857 0,08
3100 Production Management 91.610.705.461 33.651.383 93,48 2 91.610.705.461 93,48
3310 Quality Control 1.446.484.823 531.338 1,48 3 1.446.484.823 1,48
3710 Social Services 964.323.244 354.225 0,98 6 964.323.244 0,98
2570 Purchasing 57.859.393 21.254 0,06 7 57.859.393 0,06
2000 Commerce Management 96.345.132 35.390 0,10 8
2210 İstanbul Sales 183.308.600 67.335 0,19 8
2231 İzmir -Sals 318.830.533 117.116 0,33 8
2251 Ankara -Sales 609.278.819 223.807 0,62 8
2.054.292.908 2,10
2252 Trabzon -Sales 151.314.093 55.582 0,15 8
2261 Adana -Sales 492.707.855 180.986 0,50 8
2530 Marketing 144.648.483 53.134 0,15 8
2550 Exporting 57.859.393 21.254 0,06 8
3320 Res. & Dev. 1.446.484.823 531.338 1,48 9
1000 General Director 48.216.162 17.711 0,05 9
1100 Quality System 57.859.393 21.254 0,06 9
1200 Information Tech. 67.502.626 24.796 0,07 9 1.793.641.183 1,83
4010 Accounting 57.859.393 21.254 0,06 9
4030 Finance 57.859.393 21.254 0,06 9
4040 Personnel 57.859.393 21.254 0,06 9

98.004.452.869 36.000

118
 WATER COSTS

Activity
Department Water Cost % Activity Activity Cost %
2310 Product Inventory 364.072.895 1,00 1 364.072.895 1,37
3100 Quality Control 23.911.000.732 90,00 2 23.911.000.732 89,80
3310 Production Management 87.291.656 0,50 3 87.291.656 0,33
3710 Social Services 174.583.311 0,50 6 174.583.311 0,66
2570 Purchasing 156.520.379 0,50 7 156.520.379 0,59
2000 Commerce Management 9.419.744 0,50 8
2210 İstanbul Sales 16.598.137 0,50 8
2211 İst-Europe Sales 145.486.095 0,50 8
2212 İst-Anatolia Sales 322.495.831 1,00 8
2213 İst-Technical Sales 4.028.380 0,50 8
2231 İzmir -Sales 156.750.000 0,50 8 1.442.795.041 5,42
2251 Ankara -Sales 542.608.000 2,00 8
2252 Trabzon -Sales 60.000.000 0,50 8
2261 Adana -Sales 7.500.000 0,50 8
2530 Marketing 126.375.434 0,50 8
2550 Exporting 51.533.420 0,50 8
1000 General Director 29.097.219 0,50 9
1100 Quality System 96.990.728 0,50 9
1200 Information Tech. 116.388.873 0,50 9
3320 Res. & Dev. 116.388.873 0,50 9 853.528.354 3,21
4010 Accounting 261.884.910 1,00 9
4030 Finance 87.291.656 0,50 9
4040 Personnel 145.486.095 0,50 9

TOTAL 26.625.719.473

119
 INTERNET COSTS

Activity
Department COST PC Activity % Cost
2310 Product Inventory 3.352.465 1 1 0,44 3.352.465
3310 Production Management 36.965.356 3 3 4,80 36.965.356
3100 Quality Control 110.896.075 8 6 14,41
129.378.753
3710 Social Services 18.482.678 2 6 2,40
2570 Purchasing 99.964.850 7 7 12,99 99.964.850
2210 İstanbul Sales 15.130.213 1 8 1,97
2212 İst-Anatolia Sales 36.965.356 3 8 4,80
99.992.143
2530 Marketing 18.482.678 1 8 2,40
2550 Exporting 29.413.896 2 8 3,82
3320 Res. & Dev. 48.743.104 3 9 6,33
1100 Quality System 36.965.356 3 9 4,80
1200 Information Tech. 92.413.390 7 9 12,01
399.914.042
4010 Accounting 147.861.480 10 9 19,21
4030 Finance 36.965.356 3 9 4,80
4040 Personnel 36.965.356 3 9 4,80

TOTAL 769.567.609 57

2251 Ankara -Sales 277.036.905 8 36,00

120
 HEATING COSTS

Department Cost Heater % Activity Activity Cost

2310 Product Inventory 1.537.548.726 27 6,75 1 1.537.548.726
3100 Quality Control 5.637.678.651 98 24,74 4 5.637.678.651
2570 Purchasing 1.025.032.667 18 4,50 7 1.025.032.667
2000 Commerce Management 274.148.973 5 1,20 8
2210 İstanbul Sales 238.367.269 4 1,05 8
2211 İst-Europe Sales 1.025.032.481 18 4,50 8
2212 İst-Anatolia Sales 1.537.548.726 27 6,75 8
2231 İzmir -Sales 57.850.000 1 0,25 8
7.408.879.933
2251 Ankara -Sales 1.710.000.000 30 7,51 8
2252 Trabzon -Sales 60.000.000 1 0,26 8
2261 Adana -Sales 1.480.900.000 27 6,50 8
2530 Marketing 512.516.242 9 2,25 8
2550 Exporting 512.516.242 9 2,25 8
1000 General Director 2.562.581.210 45 11,25 9
1100 Quality System 1.537.548.726 27 6,75 9
4010 Accounting 512.516.242 9 2,25 9 7.175.227.408
4030 Finance 512.516.262 9 2,25 9
4040 Personnel 2.050.064.968 36 9,00 9

TOTAL 22.784.367.385 400

121
 APPENDIX-8 OTHER EXPENSES

Depreciation Expense Detail Expense Activities

Production Machines Depreciation 71.470.362.395 Machinery Repair & Maintenance
Sales Fleet Vehicles Depreciation 58.435.440.046 Marketing & Sales
Office Inventory Depreciation 44.350.309.044 General Management and Administration

Repair & Maintenance Expense Detail Expense Activities

Warehouse Transportation Vehicles Repair &
Maintenance 13.311.312.491 Stocking and Transport
Material Transportation Vehicles Repair &
Maintenance 3.388.232.203 Production Plant Activities
Laboratory Devices Repair & Maintenance 270.735.289 Quality Control
Establishment and Building Organization 23.911.000.732 Establishment Repair & Maintenance
Production Building Repairs 6.875.183.326 Establishment Repair & Maintenance
Production Machines Repair & Maintenance 8.731.714.610 Machinery Repair & Maintenance
Management Vehicles Repairs 2.808.926.400 Production Plant Management
Purchasing Depertment Repairs 3.058.567.034 Purchasing
Sales & Marketing Department Repairs 5.885.037.042 Marketing and Sales
Sales Fleet Vehicles Repair & Maintenance 59.166.177.904 Marketing and Sales
Office Tools Repair & Maintenance 40.054.801.096 General Management and Administration
Office Buildings Restorations 1.579.877.353 General Management and Administration

Communication Expense Detail Expense Activities

Telephone & Fax 95.335.303.336 All Activities
Product Samples Cargo and Post 9.160.800 Production Plant Management
Purchasing Agreements Cargo and Post 156.206.794 Purchasing
Customer Services Cargo and Post 13.460.793.504 Marketing and Sales
Office Documents Cargo and Post 1.507.339.750 General Management and Administration

Operational Expense Detail Expense Activities

Stationary Expenses 27.536.147.726 All Activities
Insurance Expenses 35.723.216.306 All Activities
Secondary Materials 79.259.094.881 All Activities
Product Package Shrinks 41.789.276.134 Production Plant Activities
Test Materials Packaging 314.246.816 Quality Control
Product Shelfs 1.682.500.000 Marketing and Sales
Fuel Oil 40.836.418.639 Production Plant Activities
Product Advertisements 1.163.415.000 Marketing and Sales
Campaign Advertisement 5.470.600.000 General Management and Administration
Sample Product and Present Expenses 10.940.277.727 Marketing and Sales
Import Rate of Exchange Differences 271.591.704.415 Purchasing
Export Rate of Exchange Differences 299.708.240.369 General Management and Administration

122
 Financial Expense Detail Expense Activities
Representing and Hosting for Import Activities 135.000.000 Purchasing
Representing and Hosting for Sales 10.789.049.107 Marketing and Sales
Representing and Hosting for Management
Relations 2.189.259.881 General Management and Administration
Import Customs Expenses 183.279.661 Purchasing
Export Customs Expenses 3.813.909.962 Marketing and Sales
Raw Material Import 132.189.351.269 Purchasing
Product Import 3.007.685.000 Marketing and Sales
Out of Cash Discounts 154.136.497.175 Marketing and Sales
Financing 533.404.469.656 General Management and Administration

Legal Expense Detail Expense Activities

Law Court and Notary Public 78.260.700.223 All Activities
Private Vehicle Insurance 20.751.040.194 All Activities
Traffic Insurance 4.971.087.623 All Activities
Vehicle Tax and Mortar 12.424.627.830 All Activities
Membership Fee and Registration 40.687.948.167 All Activities
Legal Stamp 2.555.138.794 All Activities
Legal Donations 2.748.500.000 General Management and Administration

Management Expense Detail Expense Activities

Stock Vehicles Renting 9.200.000.000 Stocking and Transport
Sales Vehicles Renting 63.600.000.000 Marketing and Sales
Gasoline 221.527.706.717 All Activities
Stocking Vehicles Leasing 1.408.733.333 Stocking and Transport
Production Machines Leasing 147.524.200.702 Machinery Repair & Maintenance
Management Vehicles Leasing 703.135.935 General Management and Administration
Office Inventory Expenses 232.711.864 All Activities
Sales Consulting 1.577.553.070 Marketing and Sales
Management Consulting 58.304.911.556 General Management and Administration
Customer Training and Seminars 2.268.998.270 Marketing and Sales
Advertisement 159.011.070.240 Marketing and Sales
Promotion 80.110.707.573 Marketing and Sales
Purchasing Bank Expenses 21.827.654.811 Purchasing
Sales Bank Expenses 819.616.250 Marketing and Sales
Management Bank Expenses 60.041.834.127 General Management and Administration
Other Management Expenses 7.096.111.916 All Activities

123
 Indirect Expense Detail Expense Activities
Food 157.418.934.576 All Activities
Personnel Transportation 65.206.439.699 All Activities
Salaries 1.119.054.932.278 All Activities
SSK Insurance Share 591.108.715.927 All Activities
Extra Work Payments 9.610.753.905 All Activities
Social Aid 58.985.418.690 All Activities
Bonus Payments 489.416.330.554 All Activities
Informing Compensation 56.354.048.210 All Activities
Seniority Compensation 127.595.678.852 All Activities
Incentive Payments 1.400.000.000 All Activities
Personnel Training and Seminars 6.745.400.001 All Activities

Social Expense Detail Expense Activities

Cleaning 5.014.656.831 All Activities
Security 42.515.199.664 All Activities
Kitchen 6.404.108.481 All Activities
Health 1.618.068.538 All Activities

Travel & Transportation Expense Detail Expense Activities

Regional Travel 286.085.742.936 All Activities
Shipping 414.166.567.105 All Activities
International Travel 7.512.886.621 Marketing and Sales

124
 APPENDIX-9 TRADITIONAL SYSTEM COSTS

Production
Quantities Total Man Hour Raw Material Cost Direct Labor Cost Fixed Costs Fixed Cost/KG Indirect Cost Total Cost Total Cost/KG

OVERALL 6.765.711 16.312,438 8.871.188.400.637 403.302.454.306 9.274.490.854.943 1.370.808 6.809.034.748.529 16.083.525.603.472 2.377.211

NO PRODUCT NAME
011100 ISH - TAVAN 956.546 1.137,317 706.925.741.122 28.118.579.872 735.044.320.994 768.436 474.731.520.678 1.209.775.841.671 1.264.734
011101 ISH - PLASTIK 129.281 271,033 171.552.800.855 6.700.923.898 178.253.724.753 1.378.808 113.133.017.618 291.386.742.371 2.253.902
011102 ISH - NOSTALGIA 261 0,808 269.198.530 19.984.922 289.183.452 1.107.983 337.409.381 626.592.834 2.400.739
011103 ISH - LUKS PLASTIK 77.483 235,483 136.096.964.106 5.821.999.370 141.918.963.476 1.831.614 98.293.961.747 240.212.925.223 3.100.202
011104 ISH - LIGHT 12.863 52,250 29.912.502.938 1.291.808.905 31.204.311.843 2.425.897 21.809.864.115 53.014.175.958 4.121.447
011105 ISH - AKRILUKS 24.984 167,727 53.553.798.586 4.146.809.602 57.700.608.188 2.309.502 70.011.403.032 127.712.011.219 5.111.752
011106 ISH - HIDROFOB 179.412 439,125 337.054.283.759 10.856.757.619 347.911.041.378 1.939.174 183.296.776.639 531.207.818.017 2.960.827
011108 ISH - SUSET 16.434 49,708 29.145.125.039 1.228.969.716 30.374.094.755 1.848.247 20.748.937.710 51.123.032.466 3.110.809
011109 ISH - FULLTONE 11.555 246,417 37.455.894.395 6.092.310.899 43.548.205.294 3.768.776 102.857.684.509 146.405.889.803 12.670.350
011110 ISH - SEDEFLUKS 213.563 512,950 473.550.028.719 12.681.978.527 486.232.007.246 2.276.761 214.112.340.625 700.344.347.871 3.279.334
011200 ISH - BINDER 69.086 188,400 128.398.929.915 4.657.929.144 133.056.859.059 1.925.960 78.640.734.913 211.697.593.972 3.064.262
011203 ISH - HIDROFOB ASTAR 34.868 61,950 45.729.135.011 1.531.627.975 47.260.762.986 1.355.419 25.858.776.687 73.119.539.673 2.097.039
011204 ISH - TRANSFER ASTAR 6.375 16,642 6.498.102.375 411.442.167 6.909.544.542 1.083.850 6.946.459.113 13.856.003.654 2.173.491
011300 ISH - DUVAR MACUNU 11.230 25,742 8.158.560.656 636.427.067 8.794.987.723 783.169 10.744.923.485 19.539.911.208 1.739.974
011301 ISH - AKRILUKS MACUN 8.156 22,108 7.806.653.391 546.597.931 8.353.251.322 1.024.185 9.228.320.494 17.581.571.816 2.155.661
011600 ISH - TUTKAL 51.667 198,183 65.099.432.691 4.899.808.515 69.999.241.206 1.354.815 82.724.431.958 152.723.673.164 2.955.923
011601 ISH - PARKE TUTKALI 26.473 61,267 33.523.495.934 1.514.733.504 35.038.229.438 1.323.546 25.573.544.015 60.611.773.453 2.289.570
011801 ISH - KUFKES 1.980 12,567 5.923.478.139 310.693.434 6.234.171.573 3.148.572 5.245.498.419 11.479.669.991 5.797.813
011802 ISH - MIXTON 73.210 379,183 115.376.868.080 9.374.782.905 124.751.650.985 1.704.025 158.276.305.733 283.027.956.718 3.865.974
011900 ISH - AKRILUKS KAPLAMA 2.541 6,583 2.629.736.697 162.763.801 2.792.500.498 1.098.977 2.747.973.310 5.540.473.808 2.180.430
011901 ISH - HIDROFOB KAPLAMA 26.276 83,342 35.366.565.632 2.060.507.315 37.427.072.947 1.424.382 34.787.950.719 72.215.023.666 2.748.326
011902 ISH - FLEKSIKOT 8.728 41,150 17.515.535.839 1.017.376.774 18.532.912.613 2.123.386 17.176.572.408 35.709.485.021 4.091.371
012100 ISH - MAT 21.701 89,675 37.040.885.263 2.217.090.212 39.257.975.475 1.809.040 37.431.570.612 76.689.546.088 3.533.918

125
012101 ISH - SONKAT 362.502 1.343,000 1.013.199.712.944 33.203.815.502 1.046.403.528.446 2.886.614 560.586.555.140 1.606.990.083.586 4.433.052
012102 ISH - SEDEF 9.479 38,400 23.709.476.333 949.386.832 24.658.863.165 2.601.420 16.028.684.823 40.687.547.988 4.292.388
012103 ISH - YOL CIZGI 43.063 78,033 71.526.431.819 1.929.266.123 73.455.697.942 1.705.773 32.572.179.836 106.027.877.778 2.462.157
012150 ISH - LITE FLAT 94 1,225 306.190.530 30.286.429 336.476.959 3.579.542 511.331.742 847.808.701 9.019.242
012200 ISH - ASTAR 38.955 111,092 58.334.205.932 2.746.587.642 61.080.793.574 1.567.983 46.371.179.986 107.451.973.561 2.758.362
012201 ISH - ANTIPAS 15.174 58,492 31.860.823.709 1.446.125.472 33.306.949.181 2.195.001 24.415.221.088 57.722.170.269 3.804.018
012300 ISH - BOYA MACUNU 30.469 536,892 81.272.510.402 13.273.903.086 94.546.413.488 3.103.036 224.105.919.509 318.652.332.997 10.458.247
012400 ISH - DEKOR 11.189 76,293 27.533.784.569 1.886.247.032 29.420.031.601 2.629.371 31.845.880.055 61.265.911.656 5.475.548
012401 ISH - YAT 9.222 31,080 20.886.681.676 768.409.967 21.655.091.643 2.348.199 12.973.216.779 34.628.308.422 3.754.967
012402 ISH - DEKOVER 20.793 115,920 53.176.319.999 2.865.961.499 56.042.281.498 2.695.248 48.386.592.310 104.428.873.808 5.022.309
012403 ISH - CAM CILA 20.304 63,247 46.357.366.734 1.563.686.263 47.921.052.997 2.360.178 26.400.023.076 74.321.076.073 3.660.415
012500 ISH - SENTETIK TINER 88.564 78,250 30.641.165.465 1.934.622.906 32.575.788.371 367.822 32.662.619.464 65.238.407.835 736.624
012501 ISH - YOL CIZGI TINERI 2.889 6,117 4.720.951.378 151.226.114 4.872.177.492 1.686.458 2.553.180.265 7.425.357.757 2.570.217
012600 ISH - SILIZOL 5.242 11,375 15.095.023.722 281.231.125 15.376.254.847 2.933.280 4.748.080.465 20.124.335.313 3.839.057
021100 EKO - DUVAR 951.203 1.973,392 993.551.082.433 48.789.376.630 1.042.340.459.063 1.095.813 823.720.652.538 1.866.061.111.601 1.961.791
021101 EKO - SILIKONLU 303.611 694,233 507.047.213.638 17.163.957.942 524.211.171.580 1.726.588 289.782.481.606 813.993.653.185 2.681.041
021102 EKO - AKRILIK 80.038 260,942 140.218.495.956 6.451.421.412 146.669.917.368 1.832.504 108.920.618.026 255.590.535.395 3.193.365
021103 EKO - TAVAN 370.278 531,067 209.104.001.087 13.129.888.026 222.233.889.113 600.181 221.674.484.897 443.908.374.010 1.198.852
021104 EKO- SILIKONLU IPEKSI MAT 95.058 235,150 201.638.249.991 5.813.758.165 207.452.008.156 2.182.373 98.154.823.858 305.606.832.014 3.214.951
021200 EKO- SILIKONLU ASTAR 15.249 31,200 15.065.255.671 771.376.801 15.836.632.472 1.038.536 13.023.306.419 28.859.938.891 1.892.579
021900 EKO - SILIKONLU KAPLAMA 13.600 45,650 20.898.365.227 1.128.633.044 22.026.998.271 1.619.632 19.054.933.911 41.081.932.181 3.020.730
021901 EKO - AKRILIK KAPLAMA 11.663 31,675 14.660.701.030 783.120.518 15.443.821.548 1.324.172 13.221.577.911 28.665.399.459 2.457.807
022100 EKO - INCI 95.213 275,008 204.483.415.876 6.799.200.269 211.282.616.145 2.219.052 114.792.236.946 326.074.853.091 3.424.688
022101 EKO - SENTETIK 227.173 1.219,600 658.649.983.018 30.152.921.360 688.802.904.378 3.032.063 509.077.708.599 1.197.880.612.977 5.272.988
022102 EKO - MAT 12.869 34,975 16.990.325.370 864.708.449 17.855.033.819 1.387.445 14.599.043.013 32.454.076.832 2.521.880
022200 EKO - ANTIPAS 135.487 365,233 209.781.849.223 9.029.888.470 218.811.737.693 1.615.002 152.453.385.075 371.265.122.768 2.740.227
022201 EKO - ASTAR 36.652 80,933 44.550.965.293 2.000.964.608 46.551.929.901 1.270.106 33.782.679.471 80.334.609.371 2.191.821
022400 EKO - YAT 33.920 122,530 77.478.198.837 3.029.384.597 80.507.583.434 2.373.455 51.145.696.650 131.653.280.084 3.881.288
022401 EKO - AHSAP KORUYUCU 28.735 140,563 55.194.781.262 3.475.233.795 58.670.015.057 2.041.761 58.673.056.450 117.343.071.507 4.083.629
EKO - SELULOZIK VERNIK
022403 MAT 446 0,433 901.694.850 10.713.567 912.408.417 2.043.926 180.879.256 1.093.287.672 2.449.121
EKO - SELULOZIK VERNIK
022404 PARLAK 1.239 1,033 1.787.606.767 25.547.736 1.813.154.503 1.463.685 431.327.456 2.244.481.959 1.811.878
031100 SAB - DUVAR 965.870 1.480,575 566.451.367.433 36.605.166.893 603.056.534.326 624.366 618.012.240.414 1.221.068.774.740 1.264.216
031101 SAB - TAVAN 318.567 402,633 149.583.095.047 9.954.551.687 159.537.646.734 500.798 168.064.656.231 327.602.302.964 1.028.362
032100 SAB - SENTETIK 351.222 1.303,025 693.605.626.353 32.215.488.976 725.821.115.329 2.066.559 543.900.443.791 1.269.721.559.120 3.615.154

126
032200 SAB - ANTIPAS 87.865 212,425 104.641.471.945 5.251.914.005 109.893.385.950 1.250.707 88.669.098.269 198.562.484.219 2.259.859
033100 SAB - TUTKALLI 5.851 20,050 4.294.113.042 495.708.489 4.789.821.531 818.633 8.369.144.029 13.158.965.560 2.249.011
512101 ISH - ULTRA EMAYE 38 0,650 325.401.657 16.070.350 341.472.007 8.986.105 271.318.884 612.790.891 16.126.076
512102 ISH - ULTRA PVC 2 0,250 32.871.489 6.180.904 39.052.393 19.526.196 104.353.417 143.405.810 71.702.905
512500 ISH - ULTRA TINER 19 0,183 50.869.919 4.532.663 55.402.582 2.881.049 76.525.839 131.928.421 6.860.552
8001 FILLING 1.231 0,003 16.997.035.339 84.884 16.997.120.223 13.808.020 1.433.120 16.998.553.344 13.809.184

127
 APPENDIX-10 FIRST LEVEL COST ALLOCATION AND FINAL ACTIVITY COSTS
MATRIX
EXPENSE
(TL) ACTIVITY-1 ACTIVITY-2 ACTIVITY-3 ACTIVITY-4 ACTIVITY-5 ACTIVITY-6 ACTIVITY-7 ACTIVITY-8 ACTIVITY-9
TOTALS
Stocking and Production Plant Establishment Machinery Production Plant Marketing and General Mng. &
EXPENSE TYPE Quality Control Purchasing
Tranport Activities Repair & Maint Repair & Maint Management Sales Admin.
Communication Expense 586.044.023 757.540.796 2.929.028.414 7.912.690.705 76.543.319.572 21.740.180.674 110.468.804.184
Depreciation Expense 71.470.362.395 58.435.440.046 44.350.309.044 174.256.111.485
Electricity Expense 77.145.857 91.610.705.461 1.446.484.823 964.323.244 57.859.393 2.054.292.908 1.793.641.183 98.004.452.869
Financial Expense 132.507.630.930 171.747.141.244 535.593.729.537 839.848.501.711
Heating Expense 1.537.548.726 5.637.678.651 1.025.032.667 7.408.879.933 7.175.227.408 22.784.367.385
Indirect Labor Expense 219.624.099.830 108.441.187.565 355.323.530.761 79.334.505.511 1.021.138.806.893 899.034.522.132 2.682.896.652.692
Internet Expense 3.352.465 36.965.356 129.378.753 99.964.850 377.029.048 399.914.042 1.046.604.514
Legal Expense 4.869.429.652 4.484.734.344 3.211.544.491 123.802.041.063 26.031.293.281 162.399.042.831
Management Expense 48.005.901.741 657.611.864 30.000.000 147.524.200.702 4.705.002.281 29.561.432.402 478.185.515.396 126.585.281.978 835.254.946.364
Operational Expense 1.419.880.019 123.856.539.704 4.726.675.680 7.676.710.551 274.866.840.178 32.272.163.835 371.196.328.046 816.015.138.013
Rent Expense 29.647.378.680 883.560.120 39.349.595.508 6.219.913.320 437.405.500 24.898.568.457 5.275.116.872 106.711.538.457
Repair & Maintenance Expense 13.311.312.491 3.388.232.203 270.735.289 30.786.184.058 8.731.714.610 2.808.926.400 3.058.567.034 65.051.214.946 41.634.678.449 169.041.565.480
Social Service Expense 4.809.388.364 1.842.032.001 22.797.386.991 5.003.302.188 1.646.030.528 8.623.898.334 10.829.995.108 55.552.033.514
Travel & Transportation Expense 3.461.207.685 18.592.645.941 29.250.000 2.249.680.238 444.732.814 679.628.433.598 3.359.246.386 707.765.196.662
Water Expense 364.072.895 23.911.000.732 87.291.656 174.583.311 156.520.379 1.442.795.041 853.528.354 26.989.792.368
ACTIVITY TOTALS 327.716.762.428 261.359.124.041 119.179.335.150 98.600.845.208 227.726.277.707 392.669.113.805 534.320.757.382 2.751.609.540.314 2.095.852.992.494 6.809.034.748.529

Activity 1. Stocking and Transport

Activity 2. Production Plant Activities
Activity 3. Quality Control
Activity 4. Establishment Repair & Maintenance
Activity 5. Machinery Repair & Maintenance
Activity 6. Production Plant Management
Activity 7. Purchasing
Activity 8. Marketing and Sales
Activity 9. General Management and Administration

128
 APPENDIX-11 ACTIVITY USAGE BY PRODUCTS

Activity1 Dist. Activity2 Dist. Activity3 Dist. Activity4 Dist. Activity5 Dist. Activity6 Dist. Activity7 Dist. Activity8 Dist. Activity9 Dist.
Balanced Sales
Transaction Labor in man- Quality control Operation time Machine setup purchase order transaction Labor in man-
COST DRIVER UNITS volume in kg hour time in hour in hour number Value add in TL number number hour
OVERALL 45.748.494 16.312 207.914 11.971 34.115 16.466.461.889.043 2.280 194.862 16.312

NO PRODUCT NAME
011100 ISH - TAVAN 1.113.685 1.137,317 5.069 852,500 1.232 1.432.927.836.962 248,757 4.700 1.137,317
011101 ISH - PLASTIK 1.130.106 271,033 2.520 253,833 720 364.072.385.578 85,150 3.369 271,033
011102 ISH - NOSTALGIA 40.231 0,808 50 0,733 6 847.046.647 0,029 50 0,808
011103 ISH - LUKS PLASTIK 2.885.207 235,483 3.625 221,900 825 339.898.456.403 62,006 4.613 235,483
011104 ISH - LIGHT 1.771.625 52,250 1.125 55,767 268 121.251.925.342 7,783 1.309 52,250
011105 ISH - AKRILUKS 1.858.392 167,727 2.852 195,500 775 66.387.154.460 32,792 1.401 167,727
011106 ISH - HIDROFOB 2.472.067 439,125 5.816 460,467 1.637 987.208.268.214 108,174 5.086 439,125
011108 ISH - SUSET 240.876 49,708 335 44,567 154 46.442.687.662 29,389 734 49,708
011109 ISH - FULLTONE 395.618 246,417 1.595 148,583 534 9.105.715.404 16,531 2.887 246,417
011110 ISH - SEDEFLUKS 2.215.856 512,950 6.898 419,150 1.562 824.663.599.757 107,626 12.387 512,950
011200 ISH - BINDER 299.555 188,400 927 102,133 272 126.988.942.233 23,849 1.918 188,400
011203 ISH - HIDROFOB ASTAR 213.513 61,950 475 50,550 155 106.722.478.182 27,905 545 61,950
011204 ISH - TRANSFER ASTAR 48.900 16,642 135 13,567 42 10.887.993.547 3,533 241 16,642
011300 ISH - DUVAR MACUNU 141.925 25,742 155 23,367 89 9.063.761.519 7,119 189 25,742
011301 ISH - AKRILUKS MACUN 109.876 22,108 110 17,533 84 6.154.727.658 11,565 222 22,108
011600 ISH - TUTKAL 256.100 198,183 420 93,467 231 102.676.037.457 31,427 2.149 198,183
011601 ISH - PARKE TUTKALI 294.811 61,267 542 52,100 179 42.013.314.203 53,512 1.077 61,267
011801 ISH - KUFKES 3.687 12,567 45 6,800 21 17.374.949.701 35,293 255 12,567
011802 ISH - MIXTON 32.831 379,183 2.835 158,017 302 99.988.954.458 7,364 2.960 379,183
011900 ISH - AKRILUKS KAPLAMA 112.525 6,583 75 7,833 33 453.541.582 4,395 32 6,583
011901 ISH - HIDROFOB KAPLAMA 227.200 83,342 1.456 95,717 379 54.043.663.559 44,515 122 83,342

129
011902 ISH - FLEKSIKOT 101.380 41,150 1.030 47,700 193 13.053.534.971 16,572 82 41,150
012100 ISH - MAT 205.443 89,675 2.730 75,500 283 54.680.896.661 5,957 1.341 89,675
012101 ISH - SONKAT 1.424.941 1.343,000 29.352 878,333 2.084 2.288.205.244.190 41,328 20.263 1.343,000
012102 ISH - SEDEF 688.303 38,400 3.030 39,983 207 65.720.277.937 1,053 607 38,400
012103 ISH - YOL CIZGI 524.855 78,033 1.347 80,567 322 113.569.451.036 25,903 663 78,033
012150 ISH - LITE FLAT 37.045 1,225 30 1,567 6 236.297.734 0,083 6 1,225
012200 ISH - ASTAR 202.884 111,092 570 73,817 164 125.364.321.766 13,598 1.330 111,092
012201 ISH - ANTIPAS 179.580 58,492 2.530 54,333 184 29.375.707.167 1,549 528 58,492
012300 ISH - BOYA MACUNU 62.709 536,892 2.765 241,783 580 134.138.132.828 22,553 2.297 536,892
012400 ISH - DEKOR 312.350 76,293 1.225 51,117 246 45.020.785.579 0,531 1.609 76,293
012401 ISH - YAT 58.093 31,080 1.010 15,333 60 35.786.537.993 0,287 721 31,080
012402 ISH - DEKOVER 366.251 115,920 6.540 76,617 336 123.109.348.836 1,040 2.739 115,920
012403 ISH - CAM CILA 106.128 63,247 2.675 35,467 144 22.385.926.269 1,064 940 63,247
012500 ISH - SENTETIK TINER 83.058 78,250 0 44,083 135 31.279.105.765 8,192 546 78,250
012501 ISH - YOL CIZGI TINERI 46.775 6,117 0 4,600 37 4.965.322.597 4,688 135 6,117
012600 ISH - SILIZOL 43.852 11,375 2.105 7,367 45 33.499.708.598 5,914 346 11,375
021100 EKO - DUVAR 6.021.677 1.973,392 12.993 1.504,233 4.189 2.330.440.539.832 344,127 27.360 1.973,392
021101 EKO - SILIKONLU 3.179.460 694,233 6.540 660,233 2.342 855.237.469.323 174,852 9.172 694,233
021102 EKO - AKRILIK 1.893.179 260,942 5.142 302,683 1.139 184.322.847.323 38,498 1.790 260,942
021103 EKO - TAVAN 767.772 531,067 2.685 392,050 749 490.123.522.137 70,718 3.164 531,067
021104 EKO- SILIKONLU IPEKSI MAT 1.881.972 235,150 4.335 201,867 837 356.356.380.946 39,867 6.775 235,150
021200 EKO- SILIKONLU ASTAR 115.772 31,200 227 30,100 86 35.955.644.829 11,500 202 31,200
021900 EKO - SILIKONLU KAPLAMA 173.745 45,650 561 52,850 221 13.466.415.081 23,128 95 45,650
021901 EKO - AKRILIK KAPLAMA 116.525 31,675 535 36,150 144 15.696.723.233 21,044 84 31,675
022100 EKO - INCI 2.150.267 275,008 14.792 254,783 914 369.236.758.918 11,879 4.725 275,008
022101 EKO - SENTETIK 1.301.552 1.219,600 27.235 713,667 2.101 1.146.120.335.778 14,109 20.075 1.219,600
022102 EKO - MAT 167.361 34,975 495 30,150 98 6.810.288.929 3,061 201 34,975
022200 EKO - ANTIPAS 675.878 365,233 2.790 261,700 654 241.120.360.061 35,803 3.598 365,233
022201 EKO - ASTAR 241.709 80,933 520 61,400 134 72.944.883.709 14,056 901 80,933
022400 EKO - YAT 162.509 122,530 2.010 55,117 150 102.624.356.410 0,423 1.496 122,530
022401 EKO - AHSAP KORUYUCU 340.267 140,563 870 84,733 336 93.119.769.643 1,623 2.546 140,563

130
022403 EKO - SELULOZIK VERNIK MAT 1.339 0,433 0 0,200 1 412.443.366 0,000 0 0,433
022404 EKO - SELULOZIK VERNIK PARLAK 3.263 1,033 0 0,400 1 8.276.158.249 0,000 6 1,033
031100 SAB - DUVAR 4.060.342 1.480,575 7.869 1.115,067 2.969 778.733.823.500 212,385 16.311 1.480,575
031101 SAB - TAVAN 564.822 402,633 1.891 316,950 608 286.662.966.293 65,290 1.919 402,633
032100 SAB - SENTETIK 1.148.433 1.303,025 20.875 748,183 1.552 1.032.625.169.183 28,096 12.456 1.303,025
032200 SAB - ANTIPAS 419.679 212,425 1.285 132,083 301 119.142.889.400 28,518 1.125 212,425
033100 SAB - TUTKALLI 41.834 20,050 265 9,567 42 9.060.943.390 41,675 354 20,050
512101 ISH - ULTRA EMAYE 1.500 0,650 0 0,550 6 258.611.228 0,000 57 0,650
512102 ISH - ULTRA PVC 1.125 0,250 0 0,250 3 102.721.731 0,000 2 0,250
512500 ISH - ULTRA TINER 83 0,183 0 0,117 1 30.869.873 0,000 7 0,183
8001 FILLING 8.194 0,003 0 3,433 11 28.014.956.223 0,000 42 0,003

131
 APPENDIX-12 ACTIVITY CONSUMPTION PERCENTAGES

Activity1 % Activity2 % Activity3 % Activity4 % Activity5 % Activity6 % Activity7 % Activity8 % Activity9 %

Balanced Sales
Transaction Labor in man- Quality control Operation time Machine setup purchase order transaction Labor in man-
COST DRIVER UNITS volume in kg hour time in hour in hour number Value add in TL number number hour

NO PRODUCT NAME
011100 ISH - TAVAN 2,43 6,97 2,44 7,12 3,61 8,70 10,91 2,41 6,97
011101 ISH - PLASTIK 2,47 1,66 1,21 2,12 2,11 2,21 3,74 1,73 1,66
011102 ISH - NOSTALGIA 0,09 0,00 0,02 0,01 0,02 0,01 0,00 0,03 0,00
011103 ISH - LUKS PLASTIK 6,31 1,44 1,74 1,85 2,42 2,06 2,72 2,37 1,44
011104 ISH - LIGHT 3,87 0,32 0,54 0,47 0,79 0,74 0,34 0,67 0,32
011105 ISH - AKRILUKS 4,06 1,03 1,37 1,63 2,27 0,40 1,44 0,72 1,03
011106 ISH - HIDROFOB 5,40 2,69 2,80 3,85 4,80 6,00 4,75 2,61 2,69
011108 ISH - SUSET 0,53 0,30 0,16 0,37 0,45 0,28 1,29 0,38 0,30
011109 ISH - FULLTONE 0,86 1,51 0,77 1,24 1,57 0,06 0,73 1,48 1,51
011110 ISH - SEDEFLUKS 4,84 3,14 3,32 3,50 4,58 5,01 4,72 6,36 3,14
011200 ISH - BINDER 0,65 1,15 0,45 0,85 0,80 0,77 1,05 0,98 1,15
011203 ISH - HIDROFOB ASTAR 0,47 0,38 0,23 0,42 0,45 0,65 1,22 0,28 0,38
011204 ISH - TRANSFER ASTAR 0,11 0,10 0,06 0,11 0,12 0,07 0,15 0,12 0,10
011300 ISH - DUVAR MACUNU 0,31 0,16 0,07 0,20 0,26 0,06 0,31 0,10 0,16
011301 ISH - AKRILUKS MACUN 0,24 0,14 0,05 0,15 0,25 0,04 0,51 0,11 0,14
011600 ISH - TUTKAL 0,56 1,21 0,20 0,78 0,68 0,62 1,38 1,10 1,21
011601 ISH - PARKE TUTKALI 0,64 0,38 0,26 0,44 0,52 0,26 2,35 0,55 0,38
011801 ISH - KUFKES 0,01 0,08 0,02 0,06 0,06 0,11 1,55 0,13 0,08
011802 ISH - MIXTON 0,07 2,32 1,36 1,32 0,89 0,61 0,32 1,52 2,32
011900 ISH - AKRILUKS KAPLAMA 0,25 0,04 0,04 0,07 0,10 0,00 0,19 0,02 0,04
011901 ISH - HIDROFOB KAPLAMA 0,50 0,51 0,70 0,80 1,11 0,33 1,95 0,06 0,51
011902 ISH - FLEKSIKOT 0,22 0,25 0,50 0,40 0,57 0,08 0,73 0,04 0,25

132
012100 ISH - MAT 0,45 0,55 1,31 0,63 0,83 0,33 0,26 0,69 0,55
012101 ISH - SONKAT 3,11 8,23 14,12 7,34 6,11 13,90 1,81 10,40 8,23
012102 ISH - SEDEF 1,50 0,24 1,46 0,33 0,61 0,40 0,05 0,31 0,24
012103 ISH - YOL CIZGI 1,15 0,48 0,65 0,67 0,94 0,69 1,14 0,34 0,48
012150 ISH - LITE FLAT 0,08 0,01 0,01 0,01 0,02 0,00 0,00 0,00 0,01
012200 ISH - ASTAR 0,44 0,68 0,27 0,62 0,48 0,76 0,60 0,68 0,68
012201 ISH - ANTIPAS 0,39 0,36 1,22 0,45 0,54 0,18 0,07 0,27 0,36
012300 ISH - BOYA MACUNU 0,14 3,29 1,33 2,02 1,70 0,81 0,99 1,18 3,29
012400 ISH - DEKOR 0,68 0,47 0,59 0,43 0,72 0,27 0,02 0,83 0,47
012401 ISH - YAT 0,13 0,19 0,49 0,13 0,18 0,22 0,01 0,37 0,19
012402 ISH - DEKOVER 0,80 0,71 3,15 0,64 0,98 0,75 0,05 1,41 0,71
012403 ISH - CAM CILA 0,23 0,39 1,29 0,30 0,42 0,14 0,05 0,48 0,39
012500 ISH - SENTETIK TINER 0,18 0,48 0,00 0,37 0,40 0,19 0,36 0,28 0,48
012501 ISH - YOL CIZGI TINERI 0,10 0,04 0,00 0,04 0,11 0,03 0,21 0,07 0,04
012600 ISH - SILIZOL 0,10 0,07 1,01 0,06 0,13 0,20 0,26 0,18 0,07
021100 EKO - DUVAR 13,16 12,10 6,25 12,57 12,28 14,15 15,10 14,04 12,10
021101 EKO - SILIKONLU 6,95 4,26 3,15 5,52 6,87 5,19 7,67 4,71 4,26
021102 EKO - AKRILIK 4,14 1,60 2,47 2,53 3,34 1,12 1,69 0,92 1,60
021103 EKO - TAVAN 1,68 3,26 1,29 3,28 2,20 2,98 3,10 1,62 3,26
021104 EKO- SILIKONLU IPEKSI MAT 4,11 1,44 2,08 1,69 2,45 2,16 1,75 3,48 1,44
021200 EKO- SILIKONLU ASTAR 0,25 0,19 0,11 0,25 0,25 0,22 0,50 0,10 0,19
021900 EKO - SILIKONLU KAPLAMA 0,38 0,28 0,27 0,44 0,65 0,08 1,01 0,05 0,28
021901 EKO - AKRILIK KAPLAMA 0,25 0,19 0,26 0,30 0,42 0,10 0,92 0,04 0,19
022100 EKO - INCI 4,70 1,69 7,11 2,13 2,68 2,24 0,52 2,42 1,69
022101 EKO - SENTETIK 2,85 7,48 13,10 5,96 6,16 6,96 0,62 10,30 7,48
022102 EKO - MAT 0,37 0,21 0,24 0,25 0,29 0,04 0,13 0,10 0,21
022200 EKO - ANTIPAS 1,48 2,24 1,34 2,19 1,92 1,46 1,57 1,85 2,24
022201 EKO - ASTAR 0,53 0,50 0,25 0,51 0,39 0,44 0,62 0,46 0,50
022400 EKO - YAT 0,36 0,75 0,97 0,46 0,44 0,62 0,02 0,77 0,75
022401 EKO - AHSAP KORUYUCU 0,74 0,86 0,42 0,71 0,98 0,57 0,07 1,31 0,86
022403 EKO - SELULOZIK VERNIK MAT 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00

133
022404 EKO - SELULOZIK VERNIK PARLAK 0,01 0,01 0,00 0,00 0,00 0,05 0,00 0,00 0,01
031100 SAB - DUVAR 8,88 9,08 3,78 9,31 8,70 4,73 9,32 8,37 9,08
031101 SAB - TAVAN 1,23 2,47 0,91 2,65 1,78 1,74 2,86 0,98 2,47
032100 SAB - SENTETIK 2,51 7,99 10,04 6,25 4,55 6,27 1,23 6,39 7,99
032200 SAB - ANTIPAS 0,92 1,30 0,62 1,10 0,88 0,72 1,25 0,58 1,30
033100 SAB - TUTKALLI 0,09 0,12 0,13 0,08 0,12 0,06 1,83 0,18 0,12
512101 ISH - ULTRA EMAYE 0,00 0,00 0,00 0,00 0,02 0,00 0,00 0,03 0,00
512102 ISH - ULTRA PVC 0,00 0,00 0,00 0,00 0,01 0,00 0,00 0,00 0,00
512500 ISH - ULTRA TINER 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
8001 FILLING 0,02 0,00 0,00 0,03 0,03 0,17 0,00 0,02 0,00

134
 APPENDIX-13 SECOND LEVEL COST ALLOCATION
Total Product
Activity 1 Activity 2 Activity 3 Activity 4 Activity 5 Activity 6 Activity 7 Activity 8 Activity 9 Group Costs

ACTIVITY COSTS 327.716.762.428 261.359.124.041 119.179.335.150 98.600.845.208 227.726.277.707 392.669.113.805 534.320.757.382 2.751.609.540.314 2.095.852.992.494 6.809.034.748.529

NO PRODUCT NAME
011100 ISH - TAVAN 7.977.820.539 18.222.173.771 2.905.624.681 7.021.874.445 8.223.912.476 34.170.455.540 58.304.128.580 66.367.813.322 146.124.599.887 349.318.403.240
011101 ISH - PLASTIK 8.095.450.252 4.342.516.594 1.444.500.729 2.090.775.128 4.806.182.616 8.681.888.190 19.957.659.339 47.573.013.421 34.822.876.117 131.814.862.387
011102 ISH - NOSTALGIA 288.194.833 12.951.178 28.660.729 6.040.322 40.051.522 20.199.182 6.792.837 706.040.567 103.856.198 1.212.787.367
011103 ISH - LUKS PLASTIK 20.668.015.868 3.772.931.802 2.077.902.834 1.827.746.556 5.507.084.248 8.105.422.194 14.533.065.046 65.139.302.735 30.255.344.771 151.886.816.053
011104 ISH - LIGHT 12.690.934.589 837.153.457 644.866.397 459.339.040 1.788.967.974 2.891.446.043 1.824.266.994 18.484.142.051 6.713.178.983 46.334.295.527
011105 ISH - AKRILUKS 13.312.486.558 2.687.329.357 1.634.807.968 1.610.294.961 5.173.321.566 1.583.107.852 7.685.867.266 19.783.256.694 21.549.839.878 75.020.312.098
011106 ISH - HIDROFOB 17.708.510.707 7.035.694.008 3.333.815.968 3.792.773.160 10.927.390.198 23.541.559.713 25.354.019.919 71.818.446.501 56.419.611.886 219.931.822.060
011108 ISH - SUSET 1.725.500.209 796.430.681 192.026.883 367.086.848 1.027.989.060 1.107.500.150 6.888.297.230 10.364.675.527 6.386.620.835 28.856.127.423
011109 ISH - FULLTONE 2.833.988.103 3.948.106.496 914.277.247 1.223.851.626 3.564.585.440 217.140.344 3.874.533.656 40.766.782.353 31.660.080.150 89.003.345.416
011110 ISH - SEDEFLUKS 15.873.163.214 8.218.523.750 3.954.034.138 3.452.455.922 10.426.746.176 19.665.422.183 25.225.655.604 174.914.490.131 65.904.787.742 327.635.278.859
011200 ISH - BINDER 2.145.848.493 3.018.559.069 531.369.911 841.252.133 1.815.668.988 3.028.254.384 5.589.803.471 27.083.716.160 24.205.988.908 68.260.461.518
011203 ISH - HIDROFOB ASTAR 1.529.485.874 992.567.592 272.276.923 416.370.385 1.034.664.313 2.544.968.143 6.540.434.353 7.695.842.183 7.959.453.359 28.986.063.125
011204 ISH - TRANSFER ASTAR 350.294.590 266.634.044 77.383.968 111.745.959 280.360.653 259.641.616 828.172.904 3.403.115.534 2.138.152.860 7.715.502.127
011300 ISH - DUVAR MACUNU 1.016.671.750 412.434.933 88.848.259 192.466.627 594.097.573 216.139.886 1.668.559.000 2.668.833.344 3.307.338.099 10.165.389.472
011301 ISH - AKRILUKS MACUN 787.090.543 354.221.391 63.053.603 144.418.610 560.721.305 146.769.322 2.710.540.445 3.134.820.119 2.840.520.549 10.742.155.888
011600 ISH - TUTKAL 1.834.557.493 3.175.308.377 240.750.122 769.866.508 1.541.983.589 2.448.474.293 7.365.907.427 30.345.623.580 25.462.970.109 73.185.441.499
011601 ISH - PARKE TUTKALI 2.111.862.301 981.619.174 310.682.300 429.137.429 1.194.870.400 1.001.874.657 12.542.182.786 15.208.113.819 7.871.657.398 41.652.000.264
011801 ISH - KUFKES 26.413.895 201.344.085 25.794.656 56.010.260 140.180.326 414.333.458 8.272.134.814 3.600.806.893 1.614.589.140 14.351.607.527
011802 ISH - MIXTON 235.185.113 6.075.304.085 1.625.063.320 1.301.552.133 2.015.926.597 2.384.396.503 1.725.879.016 41.797.601.581 48.718.192.998 105.879.101.347
011900 ISH - AKRILUKS KAPLAMA 806.066.505 105.478.665 42.991.093 64.521.622 220.283.370 10.815.424 1.030.004.174 451.865.963 845.839.138 3.577.865.956
011901 ISH - HIDROFOB KAPLAMA 1.627.534.414 1.335.306.495 834.600.421 788.399.314 2.529.921.127 1.288.757.574 10.433.403.214 1.722.738.984 10.707.895.217 31.268.556.762
011902 ISH - FLEKSIKOT 726.229.925 659.308.417 590.411.012 392.895.497 1.288.323.951 311.282.414 3.884.194.606 1.157.906.530 5.287.029.955 14.297.582.307

135
012100 ISH - MAT 1.471.678.008 1.436.779.642 1.564.875.790 621.878.617 1.889.096.778 1.303.953.416 1.396.199.696 18.936.008.014 11.521.613.882 40.142.083.842
012101 ISH - SONKAT 10.207.481.460 21.517.647.715 16.824.994.206 7.234.658.519 13.911.228.572 54.565.912.914 9.686.604.014 286.130.000.284 172.551.184.204 592.629.711.888
012102 ISH - SEDEF 4.930.620.156 615.247.708 1.736.840.162 329.334.835 1.381.777.502 1.567.205.115 246.895.520 8.571.332.486 4.933.704.746 24.312.958.230
012103 ISH - YOL CIZGI 3.759.769.255 1.250.255.977 772.120.033 663.611.751 2.149.431.670 2.708.245.159 6.071.162.150 9.362.097.922 10.025.870.494 36.762.564.411
012150 ISH - LITE FLAT 265.369.701 19.627.043 17.196.437 12.904.324 40.051.522 5.634.897 19.431.913 84.724.868 157.390.321 622.331.026
012200 ISH - ASTAR 1.453.350.559 1.779.919.097 326.732.308 608.013.332 1.094.741.596 2.989.512.711 3.187.222.273 18.780.679.089 14.273.267.787 44.493.438.752
012201 ISH - ANTIPAS 1.286.413.609 937.157.913 1.450.232.875 447.532.956 1.228.246.669 700.510.709 362.971.498 7.455.788.390 7.515.120.141 21.383.974.761
012300 ISH - BOYA MACUNU 449.215.258 8.602.118.946 1.584.938.300 1.991.521.653 3.871.647.107 3.198.738.266 5.286.080.828 32.435.503.660 68.980.858.431 126.400.622.449
012400 ISH - DEKOR 2.237.504.591 1.222.377.565 702.187.854 421.037.907 1.642.112.394 1.073.592.621 124.568.242 22.720.385.454 9.802.311.998 39.946.078.626
012401 ISH - YAT 416.145.628 497.966.114 578.946.721 126.297.644 400.515.218 853.387.222 67.324.509 10.181.104.980 3.993.217.279 17.114.905.313
012402 ISH - DEKOVER 2.623.617.489 1.857.279.019 3.748.823.321 631.076.380 2.242.885.221 2.935.739.276 243.693.170 38.676.902.274 14.893.621.201 67.853.637.350
012403 ISH - CAM CILA 760.241.347 1.013.342.883 1.533.348.988 292.131.942 961.236.523 533.828.207 249.485.871 13.273.562.664 8.126.051.549 26.743.229.975
012500 ISH - SENTETIK TINER 594.979.267 1.253.727.426 0 363.105.726 901.159.241 745.900.293 1.920.120.926 7.709.962.994 10.053.708.238 23.542.664.112
012501 ISH - YOL CIZGI TINERI 335.072.946 98.001.697 0 37.889.293 246.984.384 118.406.057 1.098.841.697 1.906.309.532 785.880.921 4.627.386.526
012600 ISH - SILIZOL 314.128.333 182.251.112 1.206.616.680 60.677.781 300.386.414 798.854.118 1.386.206.587 4.885.800.725 1.461.481.549 10.596.403.299
021100 EKO - DUVAR 43.135.947.080 31.617.830.743 7.447.776.973 12.390.073.434 27.962.637.471 55.573.081.073 80.657.013.675 386.345.398.400 253.545.099.762 898.674.858.611
021101 EKO - SILIKONLU 22.775.881.254 11.123.059.046 3.748.823.321 5.438.211.813 15.633.444.010 20.394.504.990 40.982.241.657 129.516.081.657 89.196.413.835 338.808.661.583
021102 EKO - AKRILIK 13.561.681.038 4.180.827.146 2.947.469.345 2.493.142.948 7.603.113.889 4.395.473.029 9.023.312.064 25.276.252.308 33.526.279.666 103.007.551.432
021103 EKO - TAVAN 5.499.889.902 8.508.790.355 1.539.081.134 3.229.238.564 4.999.764.971 11.687.779.098 16.575.034.305 44.678.247.096 68.232.451.396 164.950.276.822
021104 EKO- SILIKONLU IPEKSI MAT 13.481.403.849 3.767.591.110 2.484.885.183 1.662.735.939 5.587.187.291 8.497.887.722 9.344.075.131 95.668.496.863 30.212.517.472 170.706.780.559
021200 EKO- SILIKONLU ASTAR 829.325.419 499.888.763 130.119.709 247.927.766 574.071.812 857.419.844 2.695.507.121 2.852.403.892 4.008.635.106 12.695.299.432
021900 EKO - SILIKONLU KAPLAMA 1.244.612.530 731.407.757 321.573.377 435.315.032 1.475.231.053 321.128.201 5.420.791.307 1.341.477.078 5.865.198.480 17.156.734.813
021901 EKO - AKRILIK KAPLAMA 834.720.280 507.499.249 306.669.798 297.760.424 961.236.523 374.313.465 4.932.288.434 1.186.148.153 4.069.664.006 13.470.300.331
022100 EKO - INCI 15.403.320.032 4.406.204.345 8.478.989.994 2.098.600.091 6.101.181.821 8.805.040.930 2.784.134.137 66.720.833.605 35.333.591.647 150.131.896.602
022101 EKO - SENTETIK 9.323.593.939 19.540.523.569 15.611.498.951 5.878.331.647 14.024.707.884 27.331.072.066 3.306.961.432 283.475.287.751 156.696.518.432 535.188.495.671
022102 EKO - MAT 1.198.882.523 560.372.099 283.741.215 248.339.606 654.174.856 162.402.229 717.466.998 2.838.283.080 4.493.654.257 11.157.316.865
022200 EKO - ANTIPAS 4.841.614.038 5.851.796.129 1.599.268.664 2.155.571.310 4.365.615.876 5.749.900.540 8.391.639.716 50.806.679.219 46.925.870.571 130.687.956.065
022201 EKO - ASTAR 1.731.470.911 1.296.719.996 298.071.579 505.739.696 894.483.987 1.739.487.392 3.294.371.087 12.722.851.022 10.398.467.988 32.881.663.658
022400 EKO - YAT 1.164.125.466 1.963.184.940 1.152.161.296 453.985.118 1.001.288.045 2.447.241.876 99.123.734 21.124.733.772 15.742.886.523 45.148.730.770
022401 EKO - AHSAP KORUYUCU 2.437.481.815 2.252.116.373 498.696.680 697.931.763 2.242.885.221 2.220.589.807 380.454.208 35.951.585.684 18.059.843.352 64.741.584.903
022403 EKO - SELULOZIK VERNIK MAT 9.593.284 6.942.899 0 1.647.361 6.675.254 9.835.372 0 0 55.675.488 90.369.657

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022404 EKO - SELULOZIK VERNIK PARLAK 23.372.282 16.556.145 0 3.294.721 6.675.254 197.358.227 0 84.724.868 132.764.624 464.746.122
031100 SAB - DUVAR 29.086.029.486 23.721.884.785 4.510.625.491 9.184.584.318 19.818.828.038 18.570.153.226 49.779.192.618 230.324.553.849 190.227.080.828 575.222.932.638
031101 SAB - TAVAN 4.046.069.493 6.451.021.761 1.083.948.761 2.610.654.669 4.058.554.209 6.835.936.809 15.302.758.228 27.097.836.971 51.731.093.423 119.217.874.324
032100 SAB - SENTETIK 8.226.738.102 20.877.165.238 11.965.854.253 6.162.638.626 10.359.993.639 24.624.598.339 6.585.281.161 175.888.826.114 167.415.120.474 432.106.215.945
032200 SAB - ANTIPAS 3.006.343.317 3.403.489.439 736.580.729 1.087.944.379 2.009.251.344 2.841.152.709 6.684.186.394 15.885.912.763 27.292.766.422 62.947.627.494
033100 SAB - TUTKALLI 299.675.505 321.242.619 151.901.862 78.798.747 280.360.653 216.072.684 9.767.862.710 4.998.767.216 2.576.061.983 18.690.743.978
512101 ISH - ULTRA EMAYE 10.745.166 10.414.349 0 4.530.242 40.051.522 6.166.998 0 804.886.247 83.513.231 960.307.754
512102 ISH - ULTRA PVC 8.058.874 4.005.519 0 2.059.201 20.025.761 2.449.564 0 28.241.623 32.120.474 96.961.015
512500 ISH - ULTRA TINER 596.930 2.937.381 0 960.960 6.675.254 736.141 0 98.845.679 23.555.014 134.307.359
8001 FILLING 58.696.542 55.009 0 28.279.690 73.427.790 668.061.427 0 593.074.076 441.121 1.422.035.655

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 APPENDIX-14 ABC RESULTS AND COMPARISON
WITH THE EXISTING COSTING METHOD
Proposed Sale
Raw Material Cost Direct Labor Cost Total Cost Total Cost/KG Total Cost/KG ABC-Current Diff. Proposed Sale Price Price
(ABC) (current system) Per KG (current) Per KG (ABC)
OVERALL 8.871.188.400.637 403.302.454.306 16.083.525.603.472 2.377.211 2.377.211 - + 25 %

PRODUCT NAME
ISH - TAVAN 706.925.741.122 28.118.579.872 1.084.362.724.234 1.133.623 1.264.734 131.110 1.417.029 1.580.917
ISH - PLASTIK 171.552.800.855 6.700.923.898 310.068.587.139 2.398.408 2.253.902 -144.506 2.998.010 2.817.378
ISH - NOSTALGIA 269.198.530 19.984.922 1.501.970.819 5.754.677 2.400.739 -3.353.939 7.193.347 3.000.924
ISH - LUKS PLASTIK 136.096.964.106 5.821.999.370 293.805.779.529 3.791.874 3.100.202 -691.672 4.739.843 3.875.252
ISH - LIGHT 29.912.502.938 1.291.808.905 77.538.607.371 6.028.034 4.121.447 -1.906.587 7.535.043 5.151.809
ISH - AKRILUKS 53.553.798.586 4.146.809.602 132.720.920.286 5.312.237 5.111.752 -200.485 6.640.296 6.389.690
ISH - HIDROFOB 337.054.283.759 10.856.757.619 567.842.863.438 3.165.022 2.960.827 -204.195 3.956.277 3.701.033
ISH - SUSET 29.145.125.039 1.228.969.716 59.230.222.178 3.604.127 3.110.809 -493.318 4.505.159 3.888.511
ISH - FULLTONE 37.455.894.395 6.092.310.899 132.551.550.709 11.471.359 12.670.350 1.198.991 14.339.198 15.837.937
ISH - SEDEFLUKS 473.550.028.719 12.681.978.527 813.867.286.105 3.810.900 3.279.334 -531.567 4.763.625 4.099.167
ISH - BINDER 128.398.929.915 4.657.929.144 201.317.320.577 2.914.010 3.064.262 150.251 3.642.513 3.830.327
ISH - HIDROFOB ASTAR 45.729.135.011 1.531.627.975 76.246.826.111 2.186.728 2.097.039 -89.689 2.733.410 2.621.298
ISH - TRANSFER ASTAR 6.498.102.375 411.442.167 14.625.046.669 2.294.125 2.173.491 -120.634 2.867.656 2.716.863
ISH - DUVAR MACUNU 8.158.560.656 636.427.067 18.960.377.195 1.688.368 1.739.974 51.606 2.110.461 2.174.968
ISH - AKRILUKS MACUN 7.806.653.391 546.597.931 19.095.407.209 2.341.271 2.155.661 -185.610 2.926.589 2.694.576
ISH - TUTKAL 65.099.432.691 4.899.808.515 143.184.682.705 2.771.299 2.955.923 184.624 3.464.123 3.694.904
ISH - PARKE TUTKALI 33.523.495.934 1.514.733.504 76.690.229.702 2.896.923 2.289.570 -607.353 3.621.153 2.861.962
ISH - KUFKES 5.923.478.139 310.693.434 20.585.779.100 10.396.858 5.797.813 -4.599.045 12.996.073 7.247.266
ISH - MIXTON 115.376.868.080 9.374.782.905 230.630.752.332 3.150.263 3.865.974 715.711 3.937.829 4.832.468
ISH - AKRILUKS KAPLAMA 2.629.736.697 162.763.801 6.370.366.454 2.507.031 2.180.430 -326.601 3.133.789 2.725.538
ISH - HIDROFOB KAPLAMA 35.366.565.632 2.060.507.315 68.695.629.709 2.614.387 2.748.326 133.939 3.267.984 3.435.408

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ISH - FLEKSIKOT 17.515.535.839 1.017.376.774 32.830.494.921 3.761.514 4.091.371 329.857 4.701.893 5.114.214
ISH - MAT 37.040.885.263 2.217.090.212 79.400.059.317 3.658.820 3.533.918 -124.903 4.573.525 4.417.397
ISH - SONKAT 1.013.199.712.944 33.203.815.502 1.639.033.240.335 4.521.446 4.433.052 -88.394 5.651.808 5.541.315
ISH - SEDEF 23.709.476.333 949.386.832 48.971.821.395 5.166.349 4.292.388 -873.961 6.457.936 5.365.485
ISH - YOL CIZGI 71.526.431.819 1.929.266.123 110.218.262.353 2.559.465 2.462.157 -97.308 3.199.332 3.077.697
ISH - LITE FLAT 306.190.530 30.286.429 958.807.985 10.200.085 9.019.242 -1.180.843 12.750.106 11.274.052
ISH - ASTAR 58.334.205.932 2.746.587.642 105.574.232.327 2.710.159 2.758.362 48.203 3.387.698 3.447.952
ISH - ANTIPAS 31.860.823.709 1.446.125.472 54.690.923.941 3.604.252 3.804.018 199.766 4.505.315 4.755.023
ISH - BOYA MACUNU 81.272.510.402 13.273.903.086 220.947.035.937 7.251.536 10.458.247 3.206.712 9.064.419 13.072.809
ISH - DEKOR 27.533.784.569 1.886.247.032 69.366.110.227 6.199.491 5.475.548 -723.943 7.749.364 6.844.436
ISH - YAT 20.886.681.676 768.409.967 38.769.996.957 4.204.077 3.754.967 -449.110 5.255.096 4.693.709
ISH - DEKOVER 53.176.319.999 2.865.961.499 123.895.918.848 5.958.540 5.022.309 -936.231 7.448.175 6.277.886
ISH - CAM CILA 46.357.366.734 1.563.686.263 74.664.282.972 3.677.319 3.660.415 -16.903 4.596.649 4.575.519
ISH - SENTETIK TINER 30.641.165.465 1.934.622.906 56.118.452.483 633.649 736.624 102.976 792.061 920.781
ISH - YOL CIZGI TINERI 4.720.951.378 151.226.114 9.499.564.018 3.288.184 2.570.217 -717.967 4.110.230 3.212.772
ISH - SILIZOL 15.095.023.722 281.231.125 25.972.658.146 4.954.723 3.839.057 -1.115.666 6.193.404 4.798.821
EKO - DUVAR 993.551.082.433 48.789.376.630 1.941.015.317.674 2.040.590 1.961.791 -78.799 2.550.737 2.452.238
EKO - SILIKONLU 507.047.213.638 17.163.957.942 863.019.833.162 2.842.518 2.681.041 -161.477 3.553.148 3.351.302
EKO - AKRILIK 140.218.495.956 6.451.421.412 249.677.468.800 3.119.487 3.193.365 73.878 3.899.358 3.991.706
EKO - TAVAN 209.104.001.087 13.129.888.026 387.184.165.936 1.045.658 1.198.852 153.194 1.307.073 1.498.565
EKO- SILIKONLU IPEKSI MAT 201.638.249.991 5.813.758.165 378.158.788.715 3.978.190 3.214.951 -763.239 4.972.738 4.018.689
EKO- SILIKONLU ASTAR 15.065.255.671 771.376.801 28.531.931.904 1.871.069 1.892.579 21.510 2.338.836 2.365.724
EKO - SILIKONLU KAPLAMA 20.898.365.227 1.128.633.044 39.183.733.084 2.881.157 3.020.730 139.573 3.601.446 3.775.913
EKO - AKRILIK KAPLAMA 14.660.701.030 783.120.518 28.914.121.879 2.479.132 2.457.807 -21.326 3.098.916 3.072.258
EKO - INCI 204.483.415.876 6.799.200.269 361.414.512.748 3.795.853 3.424.688 -371.164 4.744.816 4.280.860
EKO - SENTETIK 658.649.983.018 30.152.921.360 1.223.991.400.049 5.387.926 5.272.988 -114.938 6.734.908 6.591.236
EKO - MAT 16.990.325.370 864.708.449 29.012.350.684 2.254.437 2.521.880 267.443 2.818.046 3.152.350
EKO - ANTIPAS 209.781.849.223 9.029.888.470 349.499.693.758 2.579.581 2.740.227 160.646 3.224.476 3.425.284
EKO - ASTAR 44.550.965.293 2.000.964.608 79.433.593.559 2.167.238 2.191.821 24.583 2.709.047 2.739.776
EKO - YAT 77.478.198.837 3.029.384.597 125.656.314.204 3.704.490 3.881.288 176.797 4.630.613 4.851.610
EKO - AHSAP KORUYUCU 55.194.781.262 3.475.233.795 123.411.599.960 4.294.818 4.083.629 -211.189 5.368.523 5.104.536

139
EKO - SELULOZIK VERNIK MAT 901.694.850 10.713.567 1.002.778.073 2.246.367 2.449.121 202.754 2.807.958 3.061.401
EKO - SELULOZIK VERNIK PARLAK 1.787.606.767 25.547.736 2.277.900.625 1.838.855 1.811.878 -26.978 2.298.569 2.264.847
SAB - DUVAR 566.451.367.433 36.605.166.893 1.178.279.466.964 1.219.915 1.264.216 44.301 1.524.894 1.580.271
SAB - TAVAN 149.583.095.047 9.954.551.687 278.755.521.058 875.029 1.028.362 153.333 1.093.787 1.285.453
SAB - SENTETIK 693.605.626.353 32.215.488.976 1.157.927.331.274 3.296.853 3.615.154 318.301 4.121.066 4.518.942
SAB - ANTIPAS 104.641.471.945 5.251.914.005 172.841.013.443 1.967.120 2.259.859 292.739 2.458.900 2.824.823
SAB - TUTKALLI 4.294.113.042 495.708.489 23.480.565.509 4.013.086 2.249.011 -1.764.075 5.016.357 2.811.264
ISH - ULTRA EMAYE 325.401.657 16.070.350 1.301.779.762 34.257.362 16.126.076 -18.131.286 42.821.703 20.157.595
ISH - ULTRA PVC 32.871.489 6.180.904 136.013.408 68.006.704 71.702.905 3.696.201 85.008.380 89.628.631
ISH - ULTRA TINER 50.869.919 4.532.663 189.709.941 9.865.312 6.860.552 -3.004.759 12.331.639 8.575.690
FILLING 16.997.035.339 84.884 18.419.155.879 14.963.245 13.809.184 -1.154.061 18.704.056 17.261.480

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CURRICULUM VITAE
• Name and Surname: BARIŞ ERGÜN
Personal Information • Marital status: Single
• Nationality: TR
• Birth date and place : 17.02.1979 Çatalca, İstanbul
• Communication: U.Mumcu Mah. Fatih S.M.Cad. Serçe sok.
Kardelen-B 11/4 Kartal İSTANBUL +90 216 4752572 (home)
+90 505 2636857 (mobile) bergun@ishakol.com
• Master of Science, Engineering Management
Education 2002 – 2005 Marmara University, Institute of Pure and Applied Sciences

• Bachelor of Science, Computer Engineering

1997 – 2001 Doğuş University, Faculty of Engineering

1990 – 1997 Adnan Menderes Anatolian High School

1985 – 1990 Bahçelievler Primary School

• Excellent written and spoken English
Languages • Beginner level written and spoken German
18.04.2002 – (cont.) İSHAKOL Boya San. A.Ş. Pendik, İstanbul, TURKEY
Professional Information Technologies Department Chief
experience Project engineering in a companywide ERP project, responsibility with
the implementation of the relevant ERP software system into the
organization, the development of additional software and business
intelligence applications. (Jeeves Enterprise, Sweden; SQL Server;Visual
Basic.NET and 6.0; Crystal Reports; MS Access)

Awards received • Success Certificate from Doğuş Uni. due to GPA of university education

Assoc. Memberships • Computer Programmers and Engineers Association of Turkey

• Programming Languages and Application Platforms : ASP, HTML,
Professional Javascript, IIS, Assembly, SQL, Turbo Pascal, C++, Delphi, Visual
Qualifications Basic 6.0 and .NET
• Operating and Network Systems : Windows 95/98/2000/XP,
MSDOS, LAN, TCP/IP
• Databases : Access, SQL Server 2000
• Software Applications : MSOffice, Autocad, Dreamweaver
• Other Computing Skills : RDBM And Programming, Microcontroller
programming, CAD-Cam, Robotics, System Analysis & Design