Activity-based Costing Approach Research Articles

The Application of Activity-Based Costing in a Quick Service Restaurant

ABSTRACT Traditional cost accounting systems in the manufacturing sector have been replaced in recent years by Activity Based Costing (ABC) systems. This study demonstrates the incorporation of ABC data into traditional Contribution Margin (CM) methods and provides food service managers with an improved tool for cost and profitability analysis. The study uses ABC data collected from a Quick Service restaurant (QSR) in the Southeastern United States. ABC methodologies, using qualitative methods, adapted from an established model for full-service restaurants, allowed for the tracing of overhead costs to individual menu items. Results reveal that ABC is a superior method for establishing overall menu profitability, and that a restaurant manager's menu management decisions will change dramatically if he or she is confronted with differing results from a contribution margin analysis and an ABC approach.

Activity-based costing in flexible manufacturing systems with a case study in a forging industry

The objective of this paper is to apply the activity-based costing (ABC) approach together with traditional costing (TC) for parts costing in flexible manufacturing systems (FMS) with the A(2) level of automation. We propose a new model for the implementation of ABC using the product cost tree concept. First, the required resources and activities for each part are recorded, and then their costs are calculated using the appropriate cost formulae. This model was applied in a forging industry. A comparison and analysis between ABC and TC was then carried out based on the computational results obtained from the case study. The results indicate that the ABC outputs are more reliable than the TC outputs, and thus the ABC approach is a more acceptable tool for parts costing in FMS.

Activity-Based Costing Approach to Handle the Uncertainty Costing of Higher Educational Institutions: Perspective from an Academic College

Activity-Based Costing Approach to Handle the Uncertainty Costing of Higher Educational Institutions: Perspective from an Academic College

Activity-Based Costing Menu Engineering

Traditional cost accounting systems have been replaced in recent years in the manufacturing sector by Activity-Based Costing (ABC) systems. This study tests and demonstrates whether the incorporation of ABC data into traditional menu engineering methods provides food service managers with an improved tool for cost and profitability analysis. The study uses ABC data collected from a restaurant in a western urban area of the United States. The results reveal that ABC Menu Engineering is a superior method for establishing overall menu profitability, and that a restaurant manager's menu management decisions will change dramatically if he or she is confronted with differing results from a contribution margin menu engineering analysis and an ABC approach.

Who Wins in a Dynamic World: Theory of Constraints Vs. Activity-Based Costing?

Two system-based views exist regarding managerial value chain analysis: Theory of Constraints (TOC) and Activity-Based Costing (ABC). There has been considerable debate whether TOC or ABC is the more optimal approach for strategic planning. This study seeks to compare TOC and ABC, while keeping constant the level of environmental turbulence each of the approaches encounter. With regard to organizational systems, literature regarding complex adaptive systems supports the idea that bottom-up approaches are more resilient to volatility. Consequently, this study hypothesizes that the bottom-up ABC approach will prove more agile and less limiting than the top-down TOC approach. This study then performs two computational experiments. The first experiment reveals that the ABC approach generated more PROFIT than the TOC approach, while the TOC produced a larger amount of REVENUE, for all instances of the simulation. The second experiment reveals that a hybrid TOC+ABC approach is the most optimal in the midst of environmental turbulence out of four possibilities. This hybrid TOC+ABC selects a first cut of orders that will generate the highest REVENUES per the TOC approach, and then selects a second cut of orders that will have the lowest COSTS and thus the highest PROFIT per the ABC approach. These results challenge the established literature espousing the TOC approach alone.

Maximizing supply chain profits with effective order management: integration of activity-based costing and theory of constraints with mixed-integer modelling

The development of a profitable-to-promise order management model in a make-to-order manufacturing environment is presented. The primary objective is to maximize profitability while ensuring that the firm has adequate resources to satisfy demand. The effectiveness of Activity-Based Costing and Theory of Constraints-based approaches is compared to assess order profitability. This order management model uses a mixed-integer program to consider simultaneously capacity, the relevant costs of supply chain resources and profitability. The results suggest that a close examination of cost structures is necessary for choosing an effective framework for a profitable-to-promise application. In manufacturing environments where direct manufacturing costs constitute a relatively small percentage of the total manufacturing cost, it would be beneficial to consider an Activity-Based Costing approach. On the other hand, in environments where direct costs are large, a Theory of Constraints-based approach would suffice.

Activity-based justification of IT investments

Ever since investments in IT moved from operational to decision support, academics and practitioners have been looking for ways to justify the costs. Traditional approaches, such as NPV, have been shown inadequate in capturing qualitative and quantitative benefits, and techniques developed to address the issue have proved limited in their ability to link investment justification with impact assessment. Recent literature has called for the use of business processes to assess the impact of IT and the same processes can be used to justify investments in IT. The activity-based costing (ABC) approaches in the field of accounting were developed to relate investments to product profitability by allocating the burden to those that receive the most benefit. Thus, this paper uses the ABC approach to relate investments to activities, so that it can be used to justify IT investment. The paper provides a model to determine when the approach, referred to as activity-based justification, is most appropriate and its value is illustrated using a case study.

Developing an activity-based costing approach for system development and implementation

This paper proposes the use of the Activity Based Costing (ABC) approach to software estimation. Like other more traditional approaches to software estimation, ABC provides man-day estimates. In addition, it also provides detailed costing information that is useful for management control and decision making. The paper shows how the ABC approach can be applied to software estimation by building an ABC model using data from twenty-two projects in a financial services firm. The model is then used for estimation, and comparisons between estimated and actual man-day are computed (variance analysis). The data generated by the model and from the variance analysis are useful for management control and decision making in areas such as resource allocation, outsourcing of specific development activities, and learning from adoption of new development tools and practices.

A Mathematical Programming Approach for Procurement Using Activity Based Costing

Activity Based Costing and Management are important topics in today's management accounting literature. While there has been much attention paid in the Activity Based Costing literature to customer profitability analysis, process improvement and product design, there has been far less notice taken of purchasing. In this paper we develop an Activity Based Costing approach for the determination of procurement strategies. Vendor selection using an Activity Based Costing approach is choosing the combination of suppliers for a given product group that minimizes the total costs associated with the purchasing strategy. To this end we develop a mathematical programming model where decisions involve the selection of vendors and the determination of order quantities. The system computes the total cost of ownership, thereby increasing the objectivity in the selection process and giving the opportunity for various kinds of sensitivity analysis.

INTERMODAL FREIGHT TERMINALS

The main purpose of this paper is to identify the terminal handling cost structure. In particular, its aim is to investigate whether the Activity Based Costing (ABC) approach offers a better perspective for assessing and allocating the costs of freight terminals. In this framework, our objective is also to learn about the sales performance of mainly large container terminals. The specific problem addressed here is as follows: To what extent is the Activity Based Costing approach useful for terminal operators in order to be able to charge its customers a fair and cost-oriented price? The activities performed at an intermodal freight terminal -the topic of this paper- are focussed on handling (loading, discharging, and transhipping) and storage of containerised cargo. Supportive activities (e. g. administration, customs) are taken into account as well. The conclusion of this paper is that Activity Based Costing is a useful tool for both terminal operators and customers to provide more insight into terminal resource use: cost dividing and price charging can be executed more appropriately. Clearly, besides the terminal handling costs, other factors influence the price charged per container.

On the applicability of activity based costing as a planning instrument

Activity based costing (ABC) attempts to measure the impact of overhead costs. It thus seeks to support decisions that optimally allocate overhead capacities. To evaluate the applicability of ABC as a planning instrument, we discuss the allocation of capacities within the broad framework of production-investment models for which ABC can be considered as a simple approximation. For various parameter settings the validity of the ABC approach is investigated. It turns out that the optimality loss can be considerable.

Vendor selection and evaluation an Activity Based Costing approach

In this paper we propose an Activity Based Costing approach for vendor selection and evaluation. This system allows us to compute total costs caused by a supplier in a firm's production process, thereby increasing the objectivity in the selection process. We further show that for vendor evaluation purposes the difference between the budgeted and actual total vendor score can be decomposed in a purchaser effect, a supplier effect and a combined effect. We illustrate the Activity Based Costing approach with a case study.

Activity-based costing and distribution logistics management

Most of the research papers and articles dealing with activity-based costing (ABC) have their focus on manufacturing operations, although the ABC approach can be applicable across the spectrum of company functions. This paper discusses activity-based costing in context with distribution logistics management. The procedure of calculating activity-based costs of a distribution warehouse in a case-company is presented in detail.

COSTING NEEDS AND PRACTICES IN A CHANGING ENVIRONMENT: THE POTENTIAL FOR ABC IN THE NHS

This pisper explores the potential application of ABC in a situation of rapid change - the introduction of markets for health care in the UK. This changing environment places pressures on hospital units to refine their costing methods for product costing, budget construction and the pursuit of efficiency. These are areas of management accounting for which activity-based costing (ABC) has been proposed as a refinement to traditional costings. The merits of the ABC approach were examined by conducting four case studies of acute hospitatls. The results cast doubt on the benefits to be gained from ABC in product costing, but revealed potential applications in its wider roles of cost reduction and budget construction.