Manufacturing Masters Its Ab Cs

Activity-based costing can help boost profits

In the high-tech world of aerospace manufacturing, where a few products can account for most of a factory's output, a bad production decision can cause trouble for years down the road. So in early 1999, when managers at Alcoa Inc.'s metal-forging plant in Cleveland foresaw a downturn in the aviation sector, one of their key markets, they needed to figure out which of their aircraft products were pulling in the most profits. The plant's complex processes, varied output, and long product cycles made it tough to determine which lines produced the highest fixed overhead costs. With three- to five-year commitments, "We had to make sure that we could make money on products," says Jeffrey A. Weeks, the plant's aerospace business analyst.

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