Strategic Product Mix Decisions Through Route-Level Costing: A Case Study in the Polypropylene Manufacturing Industry
DOI:
https://doi.org/10.36555/almana.v10i2.3037Keywords:
Activity-Based Costing, Bill of Material, Contribution Margin, Polypropylene Manufacturing , Product Mix DecisionsAbstract
Polypropylene manufacturers are impacted by volatile costs for raw materials (feedstocks), price competition from the marketplace, and their own plant capacities. As such, product mix decision-making is becoming increasingly reliant upon the accuracy of margins. This study was conducted to create a Route Level Costing Framework to aid in Margin-Informed Product Mix Planning within a Polypropylene Manufacturing Company. The methodology used for this research project involved a Quantitative Descriptive Case Study. Secondary Internal Data were collected from PT PRP, including Production Data, Grade-Formula-Route Mapping, Bill of materials (BOM) listings, Utility Consumption information, Costs and Selling Price Data. The developed framework will integrate both BOM-based cost calculations and Activity-Based Costing (ABC) Logic to Recalculate Production Costs at each Grade-Formula-Route combination. Additionally, it will compare the recalculated production cost with the Selling Price to determine Contribution Margin. The results indicate that grade-level costing may mask differences in costs and margins across different production routes. There exists a wide variation in Contribution Margin between the Current Costing Methodology and the proposed ABC-BOM Route-Level Cost Visibility framework. A total of 36 combinations of grades-formula-routes have been analyzed, and as a result there exist variations ranging from less than 1 USD/ton to greater than 17 USD/ton.
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