An Activity Based Costing Model for a Food Processing Industry

Food processing sector has vital importance in developing a country’s economy that is primarily driven by agriculture sector, like India. It provides significant linkages and synergies between two important aspects of economy, i.e. industry and agriculture. Activity based costing (ABC) is a modern management tool that analyzes cost of a product or service at various activity levels and provides more accurate cost information, thus helping the decision makers to devise various strategies to efficiently utilize an organization’s resources, activities and people. This paper deals with the application of an ABC model in a pulse mill in India to quantify cost of its various products. Although, there are limited published research papers related to implementation of ABC models in agriculture sector, but till date, ABC has not been applied in any food processing organization of India. The results derived from the adopted ABC model in the pulse mill provide more detailed and precise cost information that facilitate various managerial decisions, like setting of selling price, ascertaining profitability of products, taking a make or buy decision etc.