An activity-based cost calculation for a kraft pulp mill

This study introduces an activity-based costing (ABC) method for a kraft pulp mill. Our ABC model defines the production resources and costs for each process in a chemical pulp mill and allocates the costs to pulp, energy, bark, turpentine, and crude tall oil. The production processes include receiving, unloading and debarking of pulpwood, chipping, chip screening, chip storing, cooking and in-digester washing, pulp washing and screening, oxygen delignification, bleaching, drying, and chemical recovery. We also tested the effect of Scots pine pulpwood properties on the profitability of a virtual greenfield pulp mill located in Finland, where it produced 600000 air-dried (a.d.) metric tons of bleached market pulp annually. Total annual production costs were approximately EUR 216 million (USD 285 million), of which chemical recovery comprised the biggest share (almost 39%). According to the results, the price of market pulp had the most significant effect on the profitability of the mill. The pulpwood properties did not clearly affect pulp production costs; the wood procurement costs had more influence on the profitability of the value chain. Our results also indicate that the profitability of pulp making is strongly dependent on the prices of electricity and heat. This is because the mill is customer and seller in energy markets. ABC proved to be a useful tool and accurate method for cost calculation in this highly competitive branch of the forest industry.