Abstract
Most of firms are interested to know about the real cost of products and services they provide. In order to measure the real cost, several methods and techniques have been provided in literature. One of the most important and prominent methods is the Activity Based Costing (ABC) method. Determination of cost drivers in ABC is regarded as a very difficult and tiresome task. Although various methods have been introduced for this purpose but each method suffers from certain disadvantages. This paper introduces the Data Mining (DM) and Factor Analysis (FA) methods to improve the effectiveness of the ABC method. The proposed combined methods let decision makers to consider several cost drivers respect to their effects on costing, simultaneously. In 2010, we have applied the proposed method in Export Development Bank of Iran: EDBI (one of the Iranian leading banks). The results confirmed the usefulness and effectiveness of the proposed methods for bank ABC system and its economic decisions.
Highlights
All the methods used for identifying, exploration and determination of the products and services costs are called costing (Babad and Balachandran, 1993)
The results obtained from the implementation of the Data Mining (DM) process in this bank has shown that using this method it’s possible to profit from the massive data and information stored in the organizational data bases (Khademi and Aliheidari Bioki, 2009)
Since in the Activity-Based Costing (ABC), in contrast to traditional costing methods, several cost drivers are applied at two steps, this results in more accurate allocation of the costs to activities
Summary
All the methods used for identifying, exploration and determination of the products and services costs are called costing (Babad and Balachandran, 1993). Each of the developed methods in this context meets specific part of organizational requirements in a way that choosing a product of service costing methods depends on the management information requirements and their ultimate objective. What’s so important these days is that organizations need an approach which in addition to simplicity and inexpensiveness provides the most information regarding the processes, activities and services for managers. The traditional costing methods seem inappropriate (Kaplan and Anderson, 2007). Activity-Based Costing (ABC) is a method which in addition to the above mentioned benefits meets a greater range of managers’ requirements. The main idea behind ABC is that a cost object (e.g. products, services) is generated by activities which require and consume resources, for instances, labor and equipment (Demeere and Stouthuysen, 2009)
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