ERP-Enabled Assembly Cost Budgeting and Variance Reporting: A Study on IFAD Autos PLC

Abstract

In the assembly & manufacturing sector, production costs—encompassing direct materials, labor, and overhead expenses—represent a major component of total operational expenditures. Accurate estimation and management of these costs are critical for ensuring profitability, optimizing resource allocation, and supporting strategic decision-making. However, traditional budgeting methods, which often rely on manual calculations and disconnected systems, are prone to errors, delays, and inefficiencies, limiting their usefulness in fast-paced production environments. This study proposes the design and implementation of an Enterprise Resource Planning (ERP)-based budgeting and performance evaluation system, specifically tailored to manufacturing organizations. The system integrates budgeting with key ERP modules such as Production Planning (PP), Materials Management (MM), Human Capital Management (HCM), Finance (FI), and Controlling (CO). This integration enables centralized control, real-time data access, automated workflows, and transparent reporting, thus addressing many limitations of manual systems. A core feature of the proposed system is its ability to compare budgeted costs with actual expenditures and perform variance analysis at multiple responsibility center levels—such as departments, production units, or cost centers. This allows managers to identify inefficiencies, investigate root causes, and implement corrective actions proactively. To validate the system, this research presents a step-by-step methodology, including requirement analysis, ERP module configuration, process flowchart design, dummy data creation, and variance computation using simulated production scenarios. The system’s architecture, user interaction design, class diagrams, and data models are documented in detail. Sample reports and dashboards—such as Budget vs. Actual summaries, cost breakdowns, and center-wise performance charts—demonstrate the practical benefits of ERP-based cost control. The findings confirm that ERP systems can significantly enhance accuracy, responsiveness, and transparency in production budgeting processes, providing a strong foundation for informed decision-making in manufacturing enterprises. Keywords: ERP, budgeting system, variance analysis, production cost, labor cost