Applicability of activity-based management system in coal mines – a case study of an underground coal mine


  • IIT/ISM, Adjunct Professor, Department of Engineering, Dhanbad, India
  • IIT/ISM, Associate Professor, Deartment of Management Studies, Dhanbad, India
  • IIT/ISM, Professopr, Deartment of Management Studies, Dhanbad, India


In a traditional system of costing, the costs of services and products are not accurate as overhead costs are allocated through cost centres or departments. On the other hand, activity-based costing purports to costing technique in which products or services are assigned costs on the basis of their consumption of resources caused by activities and provides effective tool for activity based management system (ABMS). The cost assignment is done on specific activities like planning, design, engineering, production or despatch and thereafter the activities in the value chain are associated with different products or services. The implementation of ABMS facilitates proper decision-making by management and result in improvement of business process in terms of effectiveness and efficiency. In other words, by the process of determination of the real cost of products and services by ABC methodology, it becomes easy to identify the products and services which are economically non-viable, break-even or economically viable. Eventually, the economic break-even point can be determined and thus it is possible to compare the different options and explore opportunities for cost control by strategic decision-making. Evidently, ABMS, in a business, endeavours to analyse the information base of activity-based costing and identifies activities in order to eliminate those which do not add to the useful value of the product and focus on those activities which contribute to useful value and support the improvement of product to satisfy the consumer demands. The paper attempts to examine the efficacy of activity-based management system in underground coal mine through case analysis of a selected operating coal mine in India. To determine the cost of mining, all activities in the mine are identified first. The available resources for the activities and actual consumption based on activity cost drivers have been determined by field investigation and analysis. The costs derived by ABC method and traditional system are compared and analysed for managerial decision-making. The case study unfolds non-value added activities and inadequate capacity of underground coal transportation entailing managerial action.


Activity-based costing; activity-based management system; coal mining; activity cost drivers

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