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

Kabiru Isa Dandago, Zulaikha Rabitah Zaidi

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.


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DOI: http://dx.doi.org/10.5296/ajfa.v6i1.5291

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