JJMIE

Volume 6, Number 2, April 2012

ISSN 1995-6665
Pages 163 - 173
Jordan Journal of Mechanical and Industrial Engineering

Costing of the Production and Delivery of Ready-Mix-Concrete

O. Al-Araidaha, *, A. Momania, N. AlBashabsheha, N. Mandahawib, R. H. Fouadb
a
Industrial Engineering Department, Jordan University of Science and Technology, Irbid, Jordan
b
Department of Industrial Engineering, Hashemite University, Zarqa, Jordan

Abstract

The paper presents a model for costing production and transportation of ready-mix-concrete (RMC) based on type of the mix
and customer site information. The on-floor cost of the mix is based on the type of concrete and is estimated using activity
based costing (ABC). The cost of transporting RMC to customer's site is obtained as a function of traveling distance, traffic
factor, and demand. Volume-based discounts, penalty for late delivery, and cost of mix spoilage are considered. Moreover,
the paper provides a cost ground for improving the RMC production system using activity based management (ABM) to
improve the financial performance of the company. The proposed model is applied at a local RMC company where obtained
results show differences between the costing system of the company and that using the proposed model.

© 2012 Jordan Journal of Mechanical and Industrial Engineering. All rights reserved

Keywords: Activity-based costing (ABC); Activity-based management (ABM); Ready mix concrete (RMC)

plastic or unhardened state. The first ready-mix factory

was built in the 1930s, but the industry did not begin to
1. Introduction expand significantly until the 1960s, and it has continued
to grow since then. RMC can be custom-made to suit
Companies sell their products/services to make profit, different applications and is sold by volume usually
where profit on a product is the difference between the expressed in cubic meters. It is sometimes preferred over
selling price and the total cost of making that product. To on-site concrete mixing because of the precision of the
be successful, a product must satisfy design specification mixture and reduced worksite confusion. Other advantages
within the cost criteria specified at the start of the project. of RMC include elimination of storage space for basic
To estimate the cost of a product, traditional cost materials at site, less labor, and lower levels of pollution at
methodologies were used since 1920s. Theses costing the site. A disadvantage of RMC is the impact of traveling
methodologies were appropriate then but not today time on properties of concrete. This time is largely
because of the different financial objectives (pricing and influenced by the distance from plant to site, weight limits
profitability analysis, not inventory valuation) and the of roads and bridges, and traffic conditions. Today,
different operating situation (labors intensive, overheads, modern additives help elongate the time-span of RMC at
majority of cost is the manufacturing cost, single product added expense. To our knowledge, no research exists that
company). On the other hand, activity-based costing utilizes ABC for managing/improving the activities of
(ABC) tackles theses issues. producing and transporting RMC.
ABC is a costing model that identifies activities in an This paper presents a model for costing RMC based on
organization and assigns the cost of each activity resource the type of the mix and site information. To this end, the
to products according to the actual consumption by each production process is subdivided into its main activities.
activity. This helps estimating the actual cost of products The cost of each activity is then evaluated utilizing
for the purpose of discontinuing unprofitable products and financial records of the company. A cost fraction of that
lowering prices of overpriced ones. ABC assigns the cost activity is allocated to a product based on the rate of its
of resource to products through activities. As a result, consumption of that activity [1, 2]. The per-product cost is
ABC has predominantly been used to support strategic set constant for a product regardless to the customer
decisions such as pricing, outsourcing, and identification information. A further investigation of the value of each
and measurement of process improvement initiatives. activity is used to improve the performance of the
Several researchers discussed costing criteria in the production system and hence reduce the cost. The second
manufacturing and service arenas. In this study, we utilize cost phase deals with transporting products to customer's
ABC in leading efforts for managing and improving site. The study employs heuristics for concrete delivery to
activities in ready-mixed concrete (RMC) plants. compute the actual cost of transportation based on site
RMC refers to concrete that is specifically information, the volume of the ordered product, and the
manufactured for delivery to the customer's construction state of the traffic to and from the site. Cost information
site by truck-mounted transit mixers in a freshly mixed and are then used to derive improvement efforts of the various

*
Corresponding author. e-mail: [email protected]
164 © 2012 Jordan Journal of Mechanical and Industrial Engineering. All rights reserved - Volume 6, Number 2 (ISSN 1995-6665)

activities using lean thinking. Projected results help Activity drivers’ measure the frequency and intensity of
managers realize cost and efforts associated with the demand placed on activities by cost objects. They are
production and overhead activities. The rest of the paper is typically a one-to-one relationship with the activity.
organized as follows. Section 2 provides background and Activity measures: A measure of the workload involved in
reviews related literature. Section 3 presents the proposed the activity. It can be similar to the activity driver. Bill of
costing model. Section 4 presents a case study and the activity: A listing of the activities required (and optionally,
final section provides concluding remarks. the associated cost of the resources consumed) by a
product or other cost object. It should list each activity,
activity drivers, number of units, unit cost per driver, and
2. Background and Literature Review extended cost that, taken together, compose the total for
any particular cost object. Cost drivers: Any element that
In today’s markets, manufacturing companies, would cause a change in the cost of activity. Cost
especially small ones, struggle to increase their profits elements: An amount paid for a resource consumed by an
because of the high competitiveness and globalization. activity and included in activity cost pool. Cost objects:
Therefore, more efforts are directed towards reducing Any customer, product, service, contract, project, or other
production expenses. To this end, the impact of the various work unit for that separate cost measurement is desired.
value-added, supporting, and non value-added activities on Performance measures: Indicators of the work performed
the cost of the product or service should be investigated. and the results achieved in an activity, process, or
Today, manufacturing companies are becoming more organizational unit. Performance measures may be
information intensive, highly flexible, and immediately financial or operational. Processes: A series of activities
responsive to the customer expectations [3]. Due to the linked to perform a specific objective. Resources: An
changing manufacturing environment, traditional cost economic element that is applied or used in the
accounting is rapidly disappearing. Traditional accounting performance of activities, salaries and materials are
systems were developed at a time when direct labor resources used in the performance of activities. They can
contributed to a large percentage of the total cost of the also include any non-monetary assets that are essential for
product. Changes in manufacturing technologies, such as the completion of the item. Resource drivers: A
the just-in-time philosophy, robotics, and flexible measurement tool to associate cost with their respective
manufacturing systems decreased the direct labor activities or cost object resources drivers measure the
component of production and increased overhead cost. In quantity of resources consumed by an activity, typically a
today’s manufacturing environment, direct labor accounts one-to-one relationship with the resource [1]. Figure 1
for only 10% of the cost, whereas material accounts for illustrates the hierarchical relationship among expense
55% and overhead for 35%. As a result, product cost categories, activities, and products.
distortion occurs due to allocating overhead cost to the In [18], the authors proposed efficient and inexpensive
products arbitrarily on the basis of direct labor hours used steps for implementing ABC in small business. This
by each product [4, 5]. Cooper reports several situations procedure systematically provides the decision-maker with
that can cause distortions to occur, examples include accurate cost information to establish corporate strategies,
production volume diversity, complexity diversity, determine product cost, and improve the cost structure.
material diversity, and setup diversity [6, 7]. In the
literature, several researchers applied ABC in real life.
Examples include air conditioning industry [8], land
transportation [9], agricultural systems [10], and healthcare
[11, 12].
ABC emerged as a logical alternative to traditional cost
management systems that tended to produce insufficient
results when it came to allocating cost. The concept of
ABC came into prominence with the development of ABM
by cooper and Kaplan in 1988 [1]. ABC concentrates on
the need to make a more realistic allocation of overhead
cost to products. It emphasizes the requirement to obtain a
Figure 1: Relationship among expense categories, activities, and
better understanding of the behavior of overhead cost, and
products [1].
thus ascertains what causes overhead cost and how they
ABC, by itself, is not enough for continuous
relate to products ABC provides information to identify
improvement of the company. Activity Based
the components of overhead more precisely, assigns cost
Management (ABM) is a management philosophy that
of resource to products more accurately, and as a result it
focuses on the planning, execution and measurement of
acts as a decision support tool for companies [4, 13]. The
activities and helps companies to survive in the
implementation of ABC is justified if the cost of installing
competitive world of business. ABM allows leaders to
and operating the system are more than offsets by the long
examine non-value-added activities and make rational
term benefits [14]. Several limitations of ABC are
decisions to eliminate them. ABM relies on the ABC
presented in [15, 16, 17].
system to specify where non-value-added activities exist
Element of ABC include Activity: Work performed
and to value the monetary benefits associated with their
within an organization or the aggregations of action
elimination [19, 20]. Management must institute a
performed within an organization. Activity driver:
conscious process of organizational change and
Associates activates with their respective cost object.
 © 2012 Jordan Journal of Mechanical and Industrial Engineering. All rights reserved - Volume 6, Number 2 (ISSN 1995-6665) 165

implementation if the organization is to receive benefits mixer vehicles available in the range from 2 to 9 cubic
from the improved insights resulting from an ABC meters capacity, the majority in use have a load capacity of
analysis [2]. Figure 2 illustrates the stages of ABM 6 cubic meters of concrete. With "shelf life" of only a few
including monitoring, managing, and improving the hours, RMC is very much a local delivery service with an
performance of process [21]. average distance from the depot to point of delivery of
about 8 km.
Delivery cost, including the question of economy of
scale, has been of interest to decision makers in different
transportation sectors for many years. Managers need to
have enough information about their cost to make the right
decision about the type of services to provide and the
prices to charge [25]. There are many approaches to
estimate the cost per km for trucks. Each of them employs
a different methodology and models to calculate the
variable cost of operating trucks. Fuel, repair and
maintenance, tire, depreciation, and labor cost are the most
important cost that are considered to estimate operating
cost per km. Daniels [26] divided vehicle operating cost
Figure 2: A conceptual framework for activity –based into two different categories, running cost and standing
management [21]. cost. Running cost includes fuel consumption, engine oil
consumption, tire cost, and maintenance cost. Standing
Concrete is a primary material used in architecture and cost includes license, insurance, interest charges. Daniels
public work projects ranging in size from a single house to considered speed as the most important factor in fuel
high-rise buildings. Concrete is a hardened building consumption and found maintenance cost rise with
material created by combining a chemically inert mineral increasing speed. If fuel consumption and maintenance
aggregate (usually sand, gravel, or crushed stone), a binder cost change, operating cost will change as well. Vehicle
(natural or synthetic cement), chemical additives, and size is another factor that affects fuel consumption and it
water. As concrete dries, it acquires a stone-like will change operating cost. By using average axle number
consistency that renders it ideal for constructing roads, for each firm we can include vehicle size in our model.
bridges, water supply and sewage systems, factories, Watanatada and Dhareshwar [27] divided the variables
airports, railroads, waterways, mass transit systems, and that affect the truck operating cost to the following
other structures. The U.S. RMC industry had over $27 categories: 1. Truck characteristics e.g., weight, engine
billion in annual sales and 107,000 employed workers in power, and maintenance. 2. Local factors e.g., speed limit,
2005. It has experienced solid growth during the past 15 fuel price, labor cost, and drivers' attitude. 3. Road
years: real revenues have grown at an average annual rate characteristics e.g., pavement roughness, and road width.
of 3.8 percent since 1992 [22]. Operating cost is considered a function of road
Concrete manufacturers expect their raw material characteristics and so is policy sensitive. Barnes and
suppliers to supply a consistent, uniform product. At the Langworthy [28] estimated operating cost for commercial
cement production factory, the proportions of the various trucks based on fuel, repair, maintenance, tires and
raw materials that go into cement must be checked to depreciation cost. The authors also considered adjustment
achieve a consistent kiln feed, and samples of the mix are factors for cost, based on pavement roughness, driving
frequently examined using X-ray fluorescence analysis conditions and fuel price changes. Moreover, they
[22]. The strength of concrete is probably the most estimated the average truck operating cost per km at $0.27
important property that must be tested to comply with cents not including labor cost. For a labor cost of around
specifications. To achieve the desired strength, workers $0.22 per km, the total operating cost using Barnes’ model
must carefully control the manufacturing process, which adds up to $0.49 per km. Hashami [29] developed and
they normally do by using statistical process control. The tested a linear model in her thesis of Operating Cost for
American Standard of Testing Materials and other Commercial Vehicle Operators. Details of her contribution
organizations have developed a variety of methods for are presented in section 3.
testing strength. Quality control charts are widely used by
the suppliers of ready-mixed concrete and by the engineer
on site to continually assess the strength of concrete. Other 3. Cost Model for RMC
properties important for compliance include cement
content, water/cement ratio, and workability, and standard To estimate the cost of a demanded volume of RMC, it
test methods have been developed for these as well. is necessary to cost required materials, labor involved, fuel
RMC is not only a product, it is a service, and each and maintenance needed, plant and ancillary equipment
year about 20 million cubic meters of concrete are hired and depreciated, and delivery of RMC to customer
delivered in truck-mixers [23]. The truck-mixers have site. The proposed cost model subdivides the cost of RMC
developed since the late 1940s from a mobile site mixer into three main cost categories including 1) On-floor cost:
into specialized vehicle capable of mixing, delivering and the model utilizes a step-by-step ABC procedure from
distributing concrete in a very economic manner. Indeed, literature, 2) Cost of delivery: a new model for costing the
in the viability of RMC depends on the efficient utilization delivery of RMC is proposed, and 3) Cost associated with
of the specialized truck-mixer fleet [24]. Although truck- riding RMC scrap: the model assigns cost to scrap based
166 © 2012 Jordan Journal of Mechanical and Industrial Engineering. All rights reserved - Volume 6, Number 2 (ISSN 1995-6665)

on the location where RMC got spoiled. To illustrate, if time. The complexity of the machine may be measured by
RMC is spoiled in the factory, only on-floor cost will be the number of components of the machine or the amount
charged. On the other hand, the sum of on-floor and of technology contained in that machine. Miscellaneous
delivery cost is charged if RMC is spoiled in its way to costs (MC) are expenses that cannot be itemized or traced
customer. back to specific activities. Hence, miscellaneous cost are
estimated or forecasted for the coming year (MCt+1) based
3.1. On-floor cost: The ABC model on historical data and are divided equally over all overhead
activities.
Figure 3 illustrates the proposed ABC model based on
procedures for producing RMC and the related plant Table 1: Main activities and their cost centers.
processes. A common procedure to identify cost activities Activities Cost centers
is to interview people who work in overhead departments 1. Electrical maintenance Maintenance center
and ask them to describe their major activities. Activity
centers are established such that all activities related to 2. Vehicle maintenance
accomplishing a particular attribute are grouped. A good
3. Riding scrap
rule of thumb is not to have more than 20-25 activity
centers for an ABC project [2]. Table 1 presents RMC
4. Equipment and plant
main in-plant activities and their cost centers.
maintenance

5. Management Administration center

6. Guard work

7. Marketing and advertising

8. Purchasing Accounting center

9. General accounting

10. Material receiving and Transportation center

shipping

Figure 3: On-floor ABC procedure. 11. Employee transportation

12. Weighing Preparation of raw

For a typical RMC plant, Table 2 presents expense
categories included in the income statement of the material
13. Mixing Operation
company. Moreover, the table presents the cost driver(s) of
each category. Once the main expenses have been defined, 14. Quality Assurance Development center
a total cost of each expense can be found. Sample cost
values are shown in Table 2 as obtained from the case
study. This helps management and reengineering-teams
efforts to minimizing expenses. Notice that equipment
complexity is used as a cost driver for maintenance since
more complex machines usually require more effort and
Table 2: Expense categories, their cost drivers and yearly cost
Expense category Cost driver Cost ($/year)
Overhead Expenses
Salaries Total labor salary per year 153,672
Overtime Total labor overtime per year 67,976
Depreciation 550Money use of resources 173,
Office Expense Level of use of office resources (%) 3,655
Utilities Total cost per year 1,800
Transport Distance (km) 10,440
Maintenance Equipment complexity 49,407
Insurance Cost of resource used by activity 34,860
Licenses Type of licenses 4,490
Research and development Cost of resource used by activity 4,950
Communication Cost of resource used by activity 10,354
Miscellaneous Total cost per year 300
Total 515,454
Materials' Cost
Portland Cement Unit mass 1,772,550
Fine Aggregate Unit mass 264,690
Coarse Aggregate Unit mass 263,385
Water Unit mass 38,466
Chemical Component Unit mass 89,100
Total 2,428,191
 © 2012 Jordan Journal of Mechanical and Industrial Engineering. All rights reserved - Volume 6, Number 2 (ISSN 1995-6665) 167

To relate expenses to activities, an Expense-Activity- change quickly, causing it to become unusable within few
Dependence (EAD) matrix is established [18]. To hours. If the truck travel time exceeds the cold-joint time
illustrate, the activities that contribute to each expense are (the time within which the concrete hardens), the concrete
identified and the EAD matrix is created. The expense is rendered useless and must be dumped, which raises the
categories represent the columns of the EAD matrix, operating cost. Therefore, to conform to quality and
whereas the activities represent the rows. If activity i legislation requirements, RMC must be poured within a set
contributes to the expense category j, a checkmark"√" is time constraint. In practice, truck service is limited to a
placed in the cell i, j. Follows, each expense category is given region; the trucks must be carefully dispatched in
traced back to activities and each expense category is order to prevent the cold joint process. Consequently,
divided among activities according to the proportion of RMC production scheduling and truck-dispatching not
contribution. The check marks in the EAD matrix are only affect transshipment efficiency, but also the operating
replaced by the proportions of contribution such that each cost. A number of limitations on the RMC must be taken
column of the EAD matrix must add up to 1, implying that into account before building a model for RMC delivery:
the entire expense category is spread across the activities.
Equation 1 presents the total cost TCA(i) of activity i  The materials are batched at a central plant, and the
where, j is the number of expense categories and EAD(і,j) mixing begins at the plant, so the traveling time from
is the entry і,j of the EAD matrix. the plant to the site is critical over longer distances.
 Access roads and site access have to be able to carry
J
the weight of the truck and load.
TCA(i) =  EAD( i , j ) (1)
j 1
 RMC should be placed within 2 hours of batching to
avoid cold-joint. Concrete is still useable after this
To obtain the overhead cost of a unit volume of an point but may not conform to the relevant
RMC product, the activities consumed by the product are specifications.
identified and the Activity-Product-Dependence (APD)  A minimum volume of RMC must be available in the
matrix is created. If product k (row entry) consumes the truck during each trip.
activity i (column entry), a check-mark is placed on the
cell k,i. Follows, check marks in the APD matrix are Hashami [29] developed a general linear model
replaced by the estimated proportions of consumption of (Equation 4) to obtain the total annual cost of delivery
product k from activity i such that each column of the APD taking into account the correlations among the delivery
matrix must add up to 1. These proportions are traced over variables. The model treats all customers equally, which
the demand years and are assumed to be constant over the means that near and far customers will pay the same
years. Equation 2 illustrates the overhead cost COk of a amount of money.
unit volume of product k where, N is Number of activities
C =B O + B1 (K/T) + B2 T + B3 P + B4 O + B5 H (4)
and APD(k, i) is the entry k, i of the APD matrix.

N Where: C: Total annual cost, O: 1 if the firm is the

COk   TCA(i)  APD (k , i) (2) owner/operator, 0 otherwise, K: Overall travel distance in
i 1 kilometers, T: Number of truckloads, P: 1 if firm is
assessed a financial penalty for late delivery, 0 otherwise,
On-floor cost (CFk) of a unit volume of product k is H: 1 if the firm hauls more than one product, 0 otherwise,
then computed by adding the cost of overhead activities to and B, B1, B2, B3, B4, and B5 are the associated cost.
the cost of raw materials as illustrated in equation 3. The paper presents a model for costing the delivery of
Where, M is the number of materials’ types, umk is the RMC to the customer as a function of the travel distance
amount of material m used to produce a unit volume of and traffic conditions. To this end, the travel distance (l, in
product k, and cm is the unit cost of material m. To estimate kilometers) is penalized by a factor (w ≥ 1) to account for
CFk for the coming year (t+1), overhead expenses and traffic conditions. Equation 5 illustrates the cost of
materials' volumes and cost are to be foreseen based on delivery (CTk) of a truck load of product k where, wh and
expert opinion, regression models or time series analysis. wr are traffic factors for the hauling and return trip
respectively, and ch and cr are the cost ($/km) for the
M
CFk  COk   umk cm (3) hauling and return trip respectively.
m 1
CTk = lh wh ch + lr wr cr (5)
3.2. Delivery cost model:
3.3. Cost of riding RMC wastes:
The RMC supply process can be divided into five
major components including RMC production, product Concrete waste is a material that is no longer valuable
loading, transporting RMC to site, RMC placement, and in its current state for its intended use and is either
truck return. The RMC production and placement activities discarded or recycled. Reasons for RMC spoilage include
must be connected by trucks to form an operation cycle. failure to confirm to required RMC specifications, or delay
Since RMC is a perishable and un-storable material, it during which cold-joint takes place. Such delays are due
cannot be generated and stored in advance. Hence, time is plant break down, truck break down, or traffic conditions.
critical when it comes to the delivery process of RMC Potential cost associated with spoilage management
because as time passes, the properties of fresh concrete include the on-floor cost of wasted concrete (COk), and
168 © 2012 Jordan Journal of Mechanical and Industrial Engineering. All rights reserved - Volume 6, Number 2 (ISSN 1995-6665)

delivery cost to the location where spoilage took place D 

C k t+1 (Dk ) = CFk t+1 Dk + CTk t+1  k 
(CTk); CTk = 0 if spoilage took place at the RMC plant.  c 
Equation 6 illustrates the proposed costing model (CSt) of (5)
Dk
riding spoiled amounts of all RMC products during year t.  CS t 1  CPt 1 
In this paper, we use forecasting methods to predicate the TDt 1
spoilage amounts (VSkt+1) of product k for the coming year
(t+1) based on historical data. The estimated spoilage cost Note that real time costing of product k is composed of
per year (CSt+1) is then divided over the estimated volume 1. Estimated overhead cost, 2. Today's cost of materials, 3.
Today's cost of delivery, 4. Estimated cost of spoiled
of production for all RMC products (TDt+1) during that
RMC, and 5. Estimated cost of penalties. To compute the
year to obtain the spoilage cost per unit volume. TDt+1 is
true cost of a product during a previous year, financial
estimated using forecasting methods based on demand records are consulted to provide true expenses. Moreover,
history. true demands replace estimated ones.

CS t   CFk  CTk VS kt (6)

k
4. Model Verification

3.4. Penalties for late deliveries and volume discounts: To verify the usability of the model, we implement the
proposed costing model on a local RMC plant and results
The cost associated with delayed concrete deliveries are compared to that obtained using the traditional costing
(CP) cannot be itemized or traced back to specific model of the company. To identify and classify activities,
activities. Hence, CP cost are estimated or forecasted for trace expenses to activities, and trace activities’ cost to
the coming year and are divided over TDt+1 to obtain the products, departments in the RMC plant are visited,
related cost per unit volume. On the other hand, volume employees are interviewed, and organization chart is
discounts are traceable cost and are part of the marketing studied. The main identified activities include maintenance
policy of the company. Volume discounts may take (electrical, cars and bulldozer, equipments and plant),
various formats including fixed discount per order, management, purchasing, general accounting, receiving,
percentage discounts based on volume, and rough employee transportation, weighing, mixing, quality
discounts based on negotiations with the customer. To this assurance, waste management (riding scrap), and guard
end, the proposed model does not include volume work (plant equipment and inventory). A thorough
discounts and leaves the room to company on deciding the investigation of related expenses show that expenses of the
amount of discount on an order as a reduction from its activities can be categorized into salaries, overtime, office,
profit. communication, research and development, insurance,
licensing, fuel and oil, raw materials, water and electricity,
3.5. Total cost of RMC: and miscellanies.
To obtain the on-floor cost of products, we track
Equation 7 presents the total cost (Ckt+1) for producing and expenses of the company to products through expense
transporting Dk unit volumes of RMC product k for the categories and related activities. Table 2 illustrates expense
year t+1. Where, c is the capacity of the truck, and  Dk  , categories and their cost. Expense categories are related to
 c  activities as shown in the EAD Matrix, Table 3. Dollar
values for activity-expense intersection and total cost per
number of required truck loads, is the nearest integer
activity are shown in Table 4.
greater than or equal to Dk .
c
169

Miscellaneous 0.083 0.083 0.083 0.083 0.083 0.083 0.083 0.083 0.083 0.083 0.083 0.002 0.083
R&D 0.101 0.141 0.404 0.091 0.061 0.202
© 2012 Jordan Journal of Mechanical and Industrial Engineering. All rights reserved - Volume 6, Number 2 (ISSN 1995-6665)

Maintenance 0.248 0.029 0.711 0.005 0.002 0.003 0.002

Licenses 0.022 0.022 0.022 0.022 0.880 0.022 0.010
Communication 0.081 0.041 0.122 0.219 0.023 0.077 0.035 0.348 0.023 0.031
Expense Categories

Insurance 0.001 0.001 0.001 0.001 0.001 0.990 0.001 0.001

Transport 0.073 0.181 0.141 0.141 0.280 0.141 0.010 0.033
Utilities 0.083 0.083 0.083 0.083 0.083 0.083 0.083 0.083 0.083 0.083 0.083 0.001 0.083
Office Expense 0.337 0.237 0.027 0.399
Depreciation 0.005 0.005 0.004 0.004 0.977 0.004 0.001
Overtime 0.114 0.038 0.170 0.024 0.024 0.025 0.543 0.061 0.001
Table 3: Expense-Activity-Dependence (EAD) Matrix.

Salaries 0.081 0.025 0.119 0.158 0.019 0.081 0.033 0.018 0.018 0.388 0.041 0.002 0.017

Equipments and plant Maintenance

Employee transportation
Purchasing raw material
Electrical Maintenance

Vehicle Maintenance

Waste management
General accounting

Quality assurance
RM receiving
Management

Guard work
Weighing
Activity

Mixing
 Cost ($/Year) 33,963.06 9,154.96 67,171.37 33,107.04 5,013.93 17,323.36 8,323.82 8,486.52 4,640.30 308,334.65 15,731.91 750.37 3,452.72
Miscellaneous 24.950 24.95 24.95 24.95 24.95 24.95 24.95 24.95 24.95 24.95 24.95 0.60 24.95
© 2012 Jordan Journal of Mechanical and Industrial Engineering. All rights reserved - Volume 6, Number 2 (ISSN 1995-6665)

R&D 499.950 697.95 1,999.80 450.45 301.95 999.90

Maintenance 12,252.94 1,432.80 35,128.38 247.04 98.81 148.22 98.81
Licenses 98.78 98.78 98.78 98.78 3,951.20 98.78 44.90
Communication 838.674 424.51 1,263.19 2,267.53 238.14 797.26 362.39 3,603.19 238.14 320.97
Expense Categories

Insurance 49.80 49.80 49.80 49.80 49.80 34,511.40 49.80 49.80

Transport 762.12 1,889.64 1,472.04 1,472.04 2,923.20 1,472.04 104.40 344.52
Table 4: Dollar values for activity-expense intersections and total activity cost.

Utilities 149.850 149.85 149.85 149.85 149.85 149.85 149.85 149.85 149.85 149.85 149.85 1.80 149.85
Office Expense 1,231.74 866.24 98.69 1,458.35
Depreciation 867.75 867.75 694.20 694.20 169,558.35 694.20 173.55
Overtime 7,749.26 2,583.09 11,555.92 1,631.42 1,631.42 1,699.4 36,910.97 4,146.54 67.98
Salaries 12,447.43 3,841.80 18,286.97 24,280.18 2,919.77 12,447.43 5,071.18 2,766.10 2,766.1 59,624.74 6,300.55 307.34 2,612.42

Equipments and plant Maintenance

Employee transportation
Purchasing raw material
Electrical Maintenance

Vehicle Maintenance

Waste management
General accounting

Quality assurance
RM receiving
Management

Guard work
Weighing
Activity

Mixing
170
 © 2012 Jordan Journal of Mechanical and Industrial Engineering. All rights reserved - Volume 6, Number 2 (ISSN 1995-6665) 171

To cost the various products, P150, P200, P250, P300, and costing method of the company takes into account today's
P350, of the company for 2009, the activities consumed by materials' cost and adds a flat overhead cost of $6.00.
each product are identified and the Activity-Product Where, the unit cost of a material is obtained by dividing
Dependence (APD) matrix is created. It is noticed that the the total cost of that material over the total amount of
only difference between these products is the percentage of material used to produce all product types over the year.
raw materials consumed by the product. Hence, the dollar To illustrate, the total weight of coarse aggregate used to
produce the 90,000m3 of RMC products equals 52,677,000
expense of a product type k from a certain activity,
(18,000 × 593 + 45,000 × 574 + 18,000 × 559 + 9,000 ×
excluding materials, equals the relative yearly demand of
679) kilograms. Hence, the average unit cost of coarse
that product type ( Dk ) multiplied by that expense. To aggregate equals the per-year cost of coarse aggregate
TD ($263,385) divided by the total weight of the material used
illustrate, the relative demands of P150, P200, P250, P300, during the year. This yields a unit cost of $0.005 per
and P350 are 20%, 50%, 20%, 10%, and 0% respectively. kilogram of coarse aggregate. Note that P250 cost more
Therefore, the $33,963 of electrical maintenance, see than P300 although it is offered to customers at a lower
Table 5, is subdivided among P150, P200, P250, and P300 price. Obtained results illustrate that the RMC company
as $6,792.61, $16,981.53, $6,792.61, and $3,396.31, over estimated their yearly production cost by more than
respectively. Therefore, the overhead cost per unit volume $24,000 since no scraped mixes or penalties were reported
of each product (CO) equals $5.727. over that year. On the other hand, a scrap level of more
than 0.8% (about 720m3) of RMC mixes at the average
Table 5 presents the yearly demands and materials
price of $33.457 may justify the difference.
consumption for the four products. Table 6 presents
estimated and traditional cost per cubic meter of materials
of the company’s RMC products. The traditional on-floor

Table 5: Yearly demand and consumption of materials for RMC products.

Coarse Chemical
Yearly Demand Cement Fine Aggregate Water
Products Aggregate Component
(m³) (kg/m³) (kg/m³) (Lit/m3)
(kg/m³) (Lit/m3)
P150 18,000 235 605 593 215 4.5
P200 45,000 300 585 574 215 5
P250 18,000 360 570 559 215 5
P300 9,000 340 607 679 202 5.5

Table 6: On-Floor Cost per m3 of RMC products.

Proposed Traditional
Products
Materials Overhead On-Floor Materials Overhead On-Floor
P150 22.595 5.727 28.322 22.595 6.000 28.595
P200 26.725 5.727 32.452 26.725 6.000 32.725
P250 30.475 5.727 36.202 30.475 6.000 36.475
P300 30.034 5.727 35.761 30.034 6.000 36.034
Where, 5, 9, 12, 25, and 45 represent delivery volumes,
For delivery operations, the company limits their and NT stands for "no traffic" and WT for "with traffic"
maximum reach to customers' sites within an 80km radius conditions.
to prevent cold joint. Deliveries are made using mixing
trucks with a maximum capacity of 9m3. Customers within Table 7: Traditional vs. proposed delivery costing systems.
the circle of 20km are charged $6 per trip. Beyond the # Without Traffic With Traffic
Volume
20km limit, the customer is charged an extra $0.25 – $0.30 of
(m³) Traditional Proposed Traditional Proposed
km
per kilometer per trip depending on traffic conditions. For
5 5 0.889 0.300 0.889 0.363
the purpose of this research, company experts estimated a 14 0.889 0.840 0.889 1.015
markup percentage of 35% to estimate traditional delivery 23 1.000 1.380 1.022 1.668
cost. Moreover, they estimated the cost for hauling and 48 1.926 2.880 2.133 3.480
returning at $0.175 and $0.125 per kilometer per trip, 9 5 0.494 0.167 0.494 0.201
respectively. Furthermore, they estimated the impact of 14 0.494 0.467 0.494 0.564
traffic at wh = 1.25 and wr = 1.15. Table 7 illustrates 23 0.556 0.767 0.568 0.926
48 1.070 1.600 1.185 1.933
examples of the delivery charges of volumes of RMC to
12 5 0.741 0.250 0.741 0.302
various customers' locations. Note that the traditional 14 0.741 0.700 0.741 0.846
system is not sensitive to distances within the 20km limit. 23 0.833 1.150 0.852 1.390
Moreover, note that while the company over estimates 48 1.605 2.400 1.778 2.900
their delivery costs for various scenarios, they largely 25 5 0.533 0.180 0.533 0.218
under estimate it for the rest of the scenarios especially for 14 0.533 0.504 0.533 0.609
long distance deliveries. Summing up on-floor and 23 0.600 0.828 0.613 1.001
delivery cost yields the total cost of RMC products. Figure 48 1.156 1.728 1.280 2.088
45 5 0.494 0.167 0.494 0.201
4 shows the difference in total cost (Traditional –
14 0.494 0.467 0.494 0.564
Proposed) per cubic meter of RMC for various 23 0.556 0.767 0.568 0.926
combinations of demand, distance, and traffic conditions. 48 1.070 1.600 1.185 1.933
172 © 2012 Jordan Journal of Mechanical and Industrial Engineering. All rights reserved - Volume 6, Number 2 (ISSN 1995-6665)

Distance (km)
0
(Traditional - Proposed) ($)

0 20 40 60 80

5 NT
9 NT
12 NT
25 NT
-1
45 NT
5 WT
9 WT
12 WT
25 WT
45 WT
-2

Figure 4: Differences between traditional and proposed costing systems.

activities and assign cost of resources products according
To stay competitive, companies put efforts to reduce to the actual consumption of each product from recourses.
their expenses through the better management of their ABC helps management arrive at the true cost of a product
resources. Improvement efforts should take into account to avoid under or over costing. Moreover, the analysis of
the value that the process/activity contributes to the final expense categories and their cost help management set
product. Hence, activities with no added value should be their improvement priorities. The model accounts for
eliminated. Moreover, efforts should focus on simplifying product and vehicle constraints including expected life of
value-added activities to save time, effort, and cost. The the mix during transportation and the capacity of the
expense categories and their cost shown in Table 2 show vehicle.
that raw materials contribute to the maximum percentage The proposed model is applied at a local RMC
of expenses and cannot be changed because of company where cost differences were recognized
specifications. Hence, improvement efforts should focus compared to the current costing model of the company.
on 1. Improving work schedules to reduce overtime, 2. While on-floor and scrap management cost are similar and
Adapt preventive and predictive maintenance to ensure depend only on demand volumes and product type,
optimum levels of availability, enhance the performance of delivery cost take into account distance and traffic
machines and vehicles, and decrease the rate of conditions to customer location. This helps management
depreciation, and 3. Improve the costing practices adapted distinguish among customers in charging delivery cost.
in the company. Although materials account for the largest percentage of
expenses, RMC management should investigate potentials
to reduce or eliminate some elements for each expense.
5. Summary and Conclusions Among the many, savings associated with depreciation and
maintenance can be easily obtained through applying
The paper presents a model for costing RMC based on maintenance best practices.
the type of mix and customer’s information. The model
divides the cost into on-floor, delivery, waste riding, and
penalties related cost. The model utilizes ABC to identify
 © 2012 Jordan Journal of Mechanical and Industrial Engineering. All rights reserved - Volume 6, Number 2 (ISSN 1995-6665) 173

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