Activity-based Costing Information Research Articles

Weighted average consumption of cost drivers

Purpose An Activity-Based Costing (ABC) system generates a significant amount of detailed, complex data for management to evaluate and use, potentially reducing decision-making effectiveness. The purpose of this paper is to show how reducing the magnitude of detailed information that an ABC system provides can increase decision-making effectiveness. Design/methodology/approach This study develops a theoretical Weighted Average ABC model by taking ABC information and rearranging it to enhance decision-making effectiveness. Findings Weighted Average ABC provides cost assignments that are approximately the same to those of ABC in most situations. In Weighted Average ABC, the weighted average consumption ratios provide relevant decision-making information to determine which products are costlier. To reduce costs, management can focus on those costlier products or services and can request from the cost accountants additional detailed information concerning those costlier products or services. Research limitations/implications This study adds to the ABC literature by developing Weighted Average ABC. However, the limitation of this study is that no actual data could be obtained from a company that uses ABC, and thus, this study develops an analytical model. Practical implications Weighted Average ABC may increase decision-making effectiveness in situations when managers need to make fast decisions. Originality/value This study develops a theoretical Weighted Average ABC model in which the weighted average activity consumption ratios of the product lines and the total overhead costs are the variables needed, thus skipping Stage 1 of ABC. This, in turn, reduces the amount of information provided to management. Accordingly, weighted Average ABC provides timelier and more manageable information for decision making.

Activity Based Cost Information: Its Role In Cost Management

Activity Based Cost Information: Its Role In Cost Management

The Implementation of Activity-based Costing in the Accountant General’s Department of Malaysia

This research aims to provide insights into the process of implementing an Activity-Based Costing (ABC) system in the Accountant General’s Department of Malaysia (AGD). Additionally, this paper examines the critical factors that influence the success of the ABC implementation process, the usefulness of the ABC system and the challenges faced during the process of implementation. Using a single case study approach, this research uses semi-structured interviews, a self-developed questionnaire survey and a documents review as methods of data collection. The findings show that the most critical factors impacting the success of ABC implementation in the AGD are related to the technicality of the ABC system during the design stage. However, findings also reveal that the ABC information derived from the ABC system has limited use. This study makes a contribution to the empirical literature on the application of the New Public Management (NPM) mechanism, particularly the adoption of a private sector management technique in the context of a public sector organization in a developing country.

Recommendations From the International Colorectal Cancer Screening Network on the Evaluation of the Cost of Screening Programs

Worldwide, colorectal cancer is the fourth leading cause of death from cancer and the incidence is projected to increase. Many countries are exploring the introduction of organized screening programs, but there is limited information on the resources required and guidance for cost-effective implementation. To facilitate the generating of the economics evidence base for program implementation, we collected and analyzed detailed program cost data from 5 European members of the International Colorectal Cancer Screening Network. The cost per person screened estimates, often used to compare across programs as an overall measure, varied significantly across the programs. In addition, there were substantial differences in the programmatic and clinical cost incurred, even when the same type of screening test was used. Based on these findings, several recommendations are provided to enhance the underlying methodology and validity of the comparative economic assessments. The recommendations include the need for detailed activity-based cost information, the use of a comprehensive set of effectiveness measures to adequately capture differences between programs, and the incorporation of data from multiple programs in cost-effectiveness models to increase generalizability. Economic evaluation of real-world colorectal cancer-screening programs is essential to derive valuable insights to improve program operations and ensure optimal use of available resources.

Institutionalization of Activity Based Costing in a Sri Lankan Manufacturing Firm: A Case Study

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.

The Activity-based costing (ABC) in a Public Higher Education Institutions (HEI): Stakeholders perceptions


 The purpose of this study is to investigate the differences in perceptions, i) on the usefulness of costing information produced by ABC and the traditional costing system, and ii) between users and preparers. The respondents were selected using disproportionate stratified random sampling method among staff in the biggest public university in Malaysia with a multi-campus university system. Twelve branch campuses across the country. The data was collected using structure postal questionnaires that were distributed to 153 respondents across all of their campuses. The results indicated that respondent perceived the information produced by ABC system as of higher functionality as compared to the traditional costing system information. The finding also showed that there was no significance difference between users and prepares with regards to the quality of ABC system, but users perceived the ABC information is of higher functionality than do the preparers.

The effect of outcome and process accountability on customer–supplier negotiations

Prior studies on customer–supplier negotiations (Drake & Haka, 2008; Van den Abbeele, Roodhooft, & Warlop, 2009) find that negotiators who have access to relevant activity-based cost information are not always able to use this information to improve joint outcomes. Our study extends this literature by examining how the type of accountability (process and outcome accountability) influences the extent to which negotiators can obtain lower joint costs. We hypothesize and test a model that predicts that the type of accountability affects negotiated outcomes through its effect on negotiators’ fixed-pie bias revisions and the negotiation tactics they employ during customer-supplier negotiations. Results from an experiment show that negotiators held accountable for their negotiation processes are better able to reduce their fixed-pie biases and achieve lower joint costs compared to those who are held accountable for their negotiation outcomes. Using rich data based on taped negotiations, we demonstrate that the effect of accountability on joint costs is indirect through its effect on negotiators’ choice of negotiation tactics and the extent to which negotiators can reduce their fixed-pie biases.

ABC Information, Fairness Perceptions, and Interfirm Negotiations

ABSTRACTWe examine the effect of more precise cost information on contract renegotiations between supply-chain parties. Specifically, we experimentally investigate the benefits of activity-based costing (ABC) information to address common supply-chain inefficiencies that are caused by the buyer or the seller, but have the same underlying costs. Results suggest that the impact of more precise cost information depends crucially on the cause of the inefficiency that parties need to address during the negotiation. ABC information increases the total joint profit in the supply chain. However, ABC information increases the seller's perceptions of the fairness of the buyer's arguments for contract changes only when the buyer causes the inefficiency but not when the seller causes the inefficiency. The combined effect of ABC information on joint profit and fairness perceptions thus increases the buyer's profit only when buyer causes the inefficiency but not when the seller causes the inefficiency.Data Availability: Data are available from the first author upon request.

Managing Supply Chain’s Transaction Costs Through Logistics

The bulk chemical industry primarily relies upon truck transportation. Truck transportation, although costly, has a high percentage of on-time deliveries. Cheaper alternative transportation modes are less preferred due to a lack of supply chain information. Traditionally, the lack of information about in-transit products leads to higher safety stock and inventory levels, which results in higher costs. Process mapping and activity-based cost analysis are used to identify cost drivers and highlight the areas of opportunity for improving bulk chemical supply chain management. The activity-based cost information was used to develop a logistics cost model specifically tailored to the bulk chemical industry. The activity-based logistics cost model was used to assess potential cost savings from integrating centralized supply chain management software (visibility solutions), into the bulk chemical supply chain. The results of our analysis support integrating visibility solution software into multi-modal transportation to improve bulk chemical supply chain management. Integration of visibility solutions enables suppliers to improve their ability to monitor and control their inventory throughout the supply chain, increase overall asset utilization, and reduce global supply chain costs.

A review on the role of activity-based costing information and costs structure integration in supply chain and operations

In recent times, activity-based costing (ABC) has been evolving to a managerial and cost accounting system rather than a mere cost accounting. The popularity of integration of the ABC in the mathematical models of supply chain management (SCM) for decision support further emphasises the managerial scope of ABC. In this paper, we review the significant role of ABC information and cost structure integration in supply chain mathematical decision support modelling, with the aim of comparing its applicability at different managerial hierarchy levels. The presented literature provides a framework for evaluating the suitability of ABC into different SCM decision making processes.

Applying activity-based costing information to improve managerial decisions in relation to market orientation

Based on the approach of information process, this study aims to contribute to the activity-based costing (ABC) literature by linking the relationship between ABC information and the managerial decisions of market orientation. This study also contributes to the practical operation of a firm by applying the philosophy of market orientation to the implementation of an ABC system. In summary, this study focuses on how ABC information could be used in response to special orders, reduce inter-departmental conflicts and to manage customer relationships.

Employee Participation in Continuous Improvement Programs: The Interaction Effects of Accounting Information and Control

The design of management accounting control systems (MACS) is an important factor affecting the extent and success of employee involvement in continuous improvement (CI) programs. The results of an experiment reported here indicate that the combination of Activity-Based Cost (ABC) information and an emphasis on idea generation are both important in determining the number of recommendations received. Cost information is important in determining the overhead reduction associated with those recommendations. Furthermore, results-based control leads to less overhead reduction when Volume-Based Cost information (VBC) is provided, but greater average overhead reduction per recommendation when ABC information is provided.

Activity-based costing and process modeling for cost-conscious product design: A case study in a manufacturing company

The most effective way to control costs is to design them out of the products. However, cost data is rarely available for product designers in a usable form. The aim of this study was to investigate the possibilities of activity-based costing and the modeling of design, purchasing and manufacturing processes in providing useful cost information for product designers. The hypothesis was that activity-based costing and process modeling might provide an effective tool for the evaluation of different design options. The study was conducted in a large Finnish manufacturing company. First, the most costly items of one product's sub-assembly were studied in order to identify the activities needed to produce the items and to calculate their activity-based costs. Second, the processes, in other words the activity chains, were modeled with graphic flowcharts from product design, purchasing, and manufacturing departments. Finally, the applicability of activity-based cost information and process models to product designing practices was tested. The results of the study suggested that activity-based costing and process modeling provide a good starting point in heading toward more cost-conscious design. This way the designers learn the relationships between the activities performed in the organization and their associated costs. The development of a parametric cost estimation model based on activity-based costing and process modeling provides a challenge for future research.

Wilson Electronics (A) and (B): An ABC Capstone Experience

This case is designed to provide students with an activity-based costing (ABC) capstone experience that addresses the following topics: (1) applying resource usage and resource spending concepts to support “what-if” decision making; (2) using ABC product cost information to support strategic product mix decision making; (3) using ABC process cost information to support process improvement decision making; and (4) using ABC information in conjunction with the theory of constraints (TOC) to support revenue growth-oriented modes of analysis when making decisions. The case is partitioned into (A) and (B) versions to enable greater flexibility from a teaching perspective. More specifically, the (A) case focuses on the resource usage vs. resource spending portion of the analysis. The (B) case expands the analysis to address the full range of topics mentioned above.

The Impact of Activity Based Costing on Managerial Decisions at Insteel Industries - A Field Study

In this paper, we seek to provide empirical documentation of the effect of Activity-Based Costing (ABC) information on product and customer-related decisions made by managers in a company. Proponents of ABC argue that when an entity implements ABC, it reaps at least two important benefits: process improvements that promote more efficient use of resources and hence reduce costs, and a set of overhead cost numbers that, relative to traditional volume-based methods of costing, better represent the consumption of shared resources by the firm's products, and enable the firm to target a more profitable mix of products and customers. While there is much anecdotal evidence about the efficacy of ABC and ABM (Activity Based Management), there has been no systematic, statistical investigation of whether ABC really influences managerial decisions. An ABC analysis may not have any impact on a firm for two reasons. (1) It may not reveal any new information to the managers who intuitively know already what an ABC system formally captures. (2) Key managers may reject the ABC numbers and be unwilling to weather the organizational change and upheaval often required for effective ABM. In this study, we conduct a statistical analysis of firm-level data in order to shed light on whether ABC provides new information to managers and whether ABM significantly impacts product and customer-related decisions. We supplement this analysis with interviews with top managers in the company on whether and to what extent the ABC analysis influenced managerial decision making. We do not find much support for the hypothesis that product prices reflect all costs even when a company does not have ABC information. We find that after the ABC analysis, Insteel displayed a higher propensity to discontinue or increase prices of products that were found unprofitable in the ABC study and to discontinue customers that were found unprofitable in the ABC. The changes to the portfolio of customers served were similar but not as striking as the product mix and pricing decisions. This finding is consistent with senior managers' intuition that product level decisions can be made faster than customer level decisions.

A model for the application of data envelopment analysis (DEA) in activity-based management (ABM)

The objective of this work is to provide a quantitative model for activity-based management (ABM). The model developed is based on data envelopment analysis (DEA), an established operational research technique for productivity and efficiency determinations. Activity centres are considered as decision-making units (DMUs) whose efficiencies are determined by solution of the ABM/DEA model. ABM follows from activity-based costing (ABC) whereby ABC information is employed in improvement and cost reduction programmes. A real case study of an oilrig drill factory is used to illustrate the application of the model.

Impact of ABC information on product mix and costing decisions

The primary aim of this paper is to develop and demonstrate a mixed integer programming model that utilizes activity-based cost information to determine optimal product mix and product cost in a multi-product manufacturing environment. The model permits interesting insights to be gained into the evaluation of the marginal cost of products and marginal worth of resources for decision making involving product mix, product costing and capacity expansion/contraction. It also addresses the issue of how to determine the cost of idle capacity and attribute it to the different products. An example is presented to demonstrate the findings of the model, which the authors then compare with analogous results from a traditional linear programming-based approach. Extensions to the mixed integer programming model are also provided. >

An activity-based cost management system

Technological advances in manufacturing industries have changed the processes involved in producing end-products, the elements within the processes, the end-products themselves, and, in turn, the management and control of these processes. Much of what was performed by direct labor is now performed by automated machinery with the aid of computers. Thus, the contribution of direct labor is diminishing while that of indirect labor is steadily increasing. Also, nonvalue-added process activities are being identified and eleminated to streamline processes; products are being designed for manufacturability and maintainability, organizational lines are fading as more work is being performed by cross-functional teams; and management schemes are having to adapt to enable effective control in this new manufacturing environment. Cost and performance information which reflect the actual nature of operations are vital for effective management in these high-tech environments, and information is needed to facilitate continuous process improvement, effective product costing, and proactive cost estemating. such information must be detailed enough to support operational decisions regarding process improvement initiatives. This paper present a model of a computerized cost management information system in such an environment. This system relates cost and performance information to the individual activity level and associates activities with the processes by which goods and services are designed,procured, produced, delivered and supported. In this paper,we also discuss various analysis and design issues associated with the development of this activity-based cost information system.