IDENTIFYING POTENTIAL BOTTLENECKS THROUGH ACTIVITY UNDER-UTILIZATION COST.

Due to the increased emphasis on technology, modern manufacturing processes are no longer labor intensive. Therefore, the traditional cost estimation approaches based on volumetric measures are inadequate to asses the costs accurately. Contemporary approaches such as activity based costing have been suggested that track hidden costs by relating them to the specific activities, thus providing a much more realistic estimation for manufacturing costs. Since activity based costing does not assign cost of under-utilized resources to customers, the issue of resource under-utilization remains unaddressed. The present paper recognizes resource under-utilization cost to be an important consideration in order to identify the potential bottlenecks in the manufacturing process. This paper proposes an activity based costing model to identify resource under-utilization assuming normally distributed demand. In light of futuristic uncertainty about order sizes and in order to validate the proposed model, a discrete-event simulation approach has been presented. [ABSTRACT FROM AUTHOR]