Production Cost Analysis of Plastic Woven Sack Manufacturer

The plastic woven sack industry in Thailand is increasingly growing and competitive due to a lot of operators and price competition. The accuracy of production cost is vital for decision making in management, effect to selling price and impact the organization profit. We study at a fully integrated plastic woven sack factory. The cost calculation method of the case study manufacturer currently does not reflect the actual production cost. The purpose of this study is to analyze and develop the production cost calculation method to estimate the production cost more precisely. The study begins with laying out the production structure and concepts of production cost calculation from the cost model. It consists of direct material costs, direct labor costs and production overhead costs. Direct materials costs are calculated from the material usage in the production which includes the material in product and loss of material in any of production process. The material usage along the production is analyzed and the direct material cost is calculated under the material balance concept, which is different from the traditional calculation method that does not considered the material loss in the production. The proposed calculation method for direct labor cost is set to reflect an actual labor cost of the production, while in the traditional method, labor cost is counted in the overhead cost. Production overhead costs proposed in this study are different from the traditional calculation methods by considering all of overheads in the model. The result of the study shows that the traditional method overestimates the unit production cost. The cost difference between both methods is around 10 percent. An average direct material cost of the proposed method is higher than the traditional method by 7 percent as the material loss occurred in the production process is included. Since direct labor cost is not considered separately and counted in overhead cost in the traditional method, we analyses them together. According to the analysis, we find that they are overestimated in traditional method for 27 percent.