Impact of Overhead Costs Apportionment on Selling Price Determination in Malaysian Automobile Manufacturing Industry

Year 2016, Issue: 10 - Issue: 10, 265 - 279, 01.01.2016

Kabiru İsa Dandago Zulaikha Rabitah Zaidi Aliana Shazma Amir Binti Amir

Abstract

This study aims to examine the impact of overhead cost apportionment on
selling price determination in the Malaysian automobile manufacturing industry.
Specifically, the study looks at the treatment of overhead costs apportionment from
the perspective of the profit making effort of automobile manufacturing firms. The
methodology used is interview with staff of one automobile manufacturing company in
Malaysia taken as a case study: that is Naza Automotive Manufacturing Sdn. Bhd. The
findings of this study show that overhead costs apportionment has significant impact
on the determination of “true and fair” selling price of an automobile manufacturing
firm, especially as service centres are considered in primary apportionment before
their shares are re-apportioned to production centres, using an appropriate method.
This study, therefore, recommends that automobile manufacturing firms in Malaysia
should adopt the activity based costing method of overhead costs apportionment
as it considers service centres of the company together with production centres in
fair apportionment of overhead costs, taking into account the percentage of services
enjoyed by the production centres from the service centres. This would allow room
for fairly accurate determination of total cost per unit of their products, which would
ultimately lead to effective pricing decision.

Keywords

Overhead Costs, Cost Apportionment, Activity Based Costing, SellingPrice, Automotive Manufacturing Industry.