Abstract

The aim of this paper is to identify the reasons for the implementation and subsequent institutionalization of activity based costing (ABC) in a manufacturing subsidiary of a large local conglomerate, Sigma and the uses of ABC information by various managers. The paper adopts the qualitative case study approach and leans on the theoretical lens of old institutional economics (OIE). Our findings reveal that the implementation of ABC in Sigma was driven by the parent company’s decision to implement SAP (for the group) as the enterprise resource planning (ERP) system of which ABC was embedded as the accounting module. ABC has been in use for over ten years in Sigma, and it has become an institutionalized practice. The institutionalization of ABC in Sigma characterizes both ceremonial as well as instrumental institutionalization, and show that ceremonial institutionalization can be made effective if it can be successfully embedded to the operations of the firm, through instrumental institutionalization. This is a useful theoretical contribution of this research. This study is also an important addition to existing management accounting literature in the area of ABC, and its findings offer valuable insights to practicing managers on the implementation and use of ABC.

Highlights

  • The contemporary business environment features advances in technology, changing operational processes and globalization pressures, which have led both practitioners and academics to question the suitability of information generated through traditional management accounting systems (Joshi, 2001)

  • Institutionalization of Activity based costing (ABC) in Sigma characterizes both ceremonial as well as instrumental institutionalization, and this paper is important as it provides evidence on how ceremonial institutionalization can be made effective if it can be successfully embedded to the operations of the firm through instrumental institutionalization

  • The subsidiaries of the parent company were compelled to move towards Standard Application Procedures (SAP), of which ABC was embedded as the product costing module

Read more

Summary

Introduction

The contemporary business environment features advances in technology, changing operational processes and globalization pressures, which have led both practitioners and academics to question the suitability of information generated through traditional management accounting systems (Joshi, 2001). Innovative strategic management accounting techniques have been introduced by business consultants and scholars to provide managers with appropriate information for decision making. Activity based costing (ABC) is one such technique which has advantages over traditional accounting systems (Bjornenak, 1997). N. Gooneratne / Colombo Business Journal, 7/1

Objectives
Results
Conclusion
Full Text
Published version (Free)

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call