Delft University of Technology
Faculty Mechanical, Maritime and Materials Engineering Transport Technology / Logistic Engineering
P.A. van der Schaar The introduction of Activity Based Cost Management at Bralirwa S.A., Rwanda. Internship, Report 2003.TL.6753, Transport Technology, Logistic Engineering.
Heineken, at Dutch beer brewer, sells beer in more than 170 countries and is full or for a partly owner of 116 breweries in 67 countries, 10 of them in Africa. In one of those African countries, Rwanda, Heineken has a 70% stake in Bralirwa, "Brasseries et Limonaderies du Rwanda".
This report involves the introduction of ABC/M in Bralirwa S.A. in Kigali, Rwanda.
Activity Based Cost Management (ABC/M) is a method of establishing the profit and loss (P&L) account, partially different from the current method used. With Activity Based Costing or ABC, it is possible to establish a P&L account per product, whereas the current method provides one P&L account for all the products together. ABC is based on the allocation of all fixed or indirect costs on a variable basis.
Or, to put it in other words, the currently used financial accounting and reporting system provides information on the costs and profitability per OpCo as a whole, and on the average cost per hectolitre. This system does not focus on the cost and profitability per product or customer, while this is what Heineken needs. Note that for Bralirwa, there are three kinds of customers: SRG that relates to selling through wholesalers, SRD that relates to sales in bars and restaurants, and direct sales at the plant (STD).
Having the costs and profitability per brand and customer clear, Heineken can use this information to decide on issues concerning outsourcing, advantages of economy of scale and price differentiation.
On top of the Heineken-prescribed P&L account, the turnover of the company is found; subtracting the Value Added Tax (VAT) and the excise duty yields the net turnover. If now the direct (variable) and indirect (fixed) costs are subtracted from the net turnover, the EBIT or "Earnings Before Interest and Tax" remains. This can be done per company for all products together, because the total direct and indirect costs are known.
The direct costs like raw materials, license fees and packaging materials, are very well known per product; the indirect costs like personnel costs, costs of energy and water and maintenance costs, cannot be directly allocated to products, until now.
ABC states, first, to assign the indirect resource costs to activities using resource drivers, and, secondly, to assign the activities to cost objects like products or customers by using activity drivers. Not all the cost objects require the same share of an activity. The indirect costs are now treated in a variable way and this leads eventually to a P&L account per product per customer.
Reports on Logistic Engineering (in Dutch)
