Process Costs: From Conventional Accounting to ABC

The paper presents the conceptual basis for the development of an Activity Based Costing system (ABC) for the analysis and estimation of process costs in mining and metallurgy. In particular, it discusses three major thrusts towards attaining increased efficiency in extraction and processing systems: (a) understanding the link between process and expenses, (b) identifying the chemical and physical factors that govern process costs and ( c) using process and cost models of the production systems. The authors have developed computer techniques to analyze data from conventional accounting and apply them to the development of process based ABC systems. The cost causing activities are linked to management units patterned after the organizational structure of the production system. All costs are associated with specific process functions such as charge preparation, smelting, refining, etc. The level of detail is determined by the quality of data available in conventional accounting systems. The system permits data analysis of historical cases and the projection of costs for new production schemes. Results can be presented in various levels of aggregation, following organizational and/or functional structures. The outputs of the system are tabular and graphical, typically following Pareto analysis concepts.