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Overhead allocation for FrieslandCampina Domo Borculo

Kemper, B.P. (2017) Overhead allocation for FrieslandCampina Domo Borculo.

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Abstract:FrieslandCampina Domo Borculo currently calculates its cost prices by use of an outdated allocation. Also, they are currently working on a project called Switch. Switch is a plan to further maximize the valorize of their members milk. This research will evaluate the current allocation, propose a new allocation and investigate the foreseeable impact of project Switch. These three steps will lead to an answer on the main research question: “What is an accurate, yet efficient way to allocate overhead costs of FrieslandCampina Domo Borculo?” During a first analysis of the current cost allocation, it becomes evident that the allocations substantiation is missing. Even after further analysis and inquiry with the finance department, support for it can still not be found. In the second step, a proposed allocation gets formulated. This allocation finds its support in data driven analysis and interviews with experts on the subjects. These data analysis are set up in such a way that only the data set has to be updated in order to update the allocation. The interviews with experts which have to be done annually are kept to a minimum to keep the update process efficient, and are only conducted when data could not give accurate enough substantiation. Together with the new allocation, a new model is designed by use of Excel VBA macros. The model can be used to set up cost allocation models for other production locations. The model is designed to be fast, user-friendly and has a lot of build in checks to prevent human errors. Since there is still a lot of information missing about project Switch, this report contains a on plan how to gather that information. The plan contains information about who to conduct or what data to analyze in order to make an accurate costs allocation which accounts for project Switch. The report ends with the following conclusions and recommendations: Conclusions: - Domo Borculo has a complex production process, where only the in- and output is measured, which makes it difficult to come up with an accurate cost allocation. - The proposed conversion costs allocation differs a lot from the currently used one. This can among other reasons be explained by changed production quantities over time and machines which maintenance cost have increased. - Some service cost centers do not comply to literary standards. - More information about Switch is needed before an accurate cost allocation can be made. Recommendations: - It is advised for Domo Borculo to use the proposed allocation as stated in this report. - Domo Borculo should try to get more insight in their production process. This could help solve problems and could make cost allocation using Activity Based-Costing possible. - The service cost centers which only contain direct labor should be eliminated, as they are not in line with literary standards. - The cost center “Productpreparation LP” and “Preparation refined LP” should be fused, since they can be seen as one production step. - Further analysis on the impact of Switch should take place, since it is already apparent that the impact will be large.
Item Type:Essay (Bachelor)
FrieslandCampina Domo, Borculo, Netherlands
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:83 economics
Programme:Industrial Engineering and Management BSc (56994)
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