Activity Based Costing Method Research Articles

A study on the effect of performance based budgeting using activity based cost method

Article history: Received Feb 25, 2013 Received in revised format 19 September 2013 Accepted 23 October 2013 Available online November 18 2013 Nowadays, management of funds in different governmental organizations plays essential role in accessing desirable objectives and in controlling operations efficiently and effectively. Performance-based budgeting (PBB) is the practice of developing budgets based on the relationship between planned funding levels and anticipated results from the plan. The performance-based budgeting process is a technique where the administrators can apply to manage more cost-efficient and effective budgeting programs. In this paper, we present an empirical investigation to find out whether it is possible to apply PBB in various Iranian municipalities or not. The proposed study detects different barriers in terms of strategy, execution and monitoring through a questionnaire and investigations whether removing the important trouble making issues could help management team apply PBB with an adaptation of activity based cost method or net. The results indicate that management of some Iranian municipalities could successfully implement PBB within organization when major barriers are removed. © 2014 Growing Science Ltd. All rights reserved.

Fuzzy Time-Driven Activity-Based Costing

:Activity-Based Costing (ABC) method is a well-known costing/accounting system. It is an alternative to traditional accounting systems in which business overheads are allocated in proportion to activity's direct costs. Kaplan and Anderson proposed the second generation of the ABC system, called “time-driven activity-based costing” (TDABC), which seeks to resolve some of its drawbacks. The TDABC approach is mainly based on the time drivers spent on cost pools; however, TDABC poses some difficulties in calculations of the assigned costs. Unavailability of accurate and reliable time drivers, variety of time drivers, difficulties of collecting and updating data through calculation procedure, and huge volume of data are some examples of the difficulties. In this article, via utilizing the triangular fuzzy number (TFN), a novel mechanism for the TDABC system is proposed. We employ fuzzy logic to estimate inputs required for TDABC, namely, the required time to perform each activity and practical capacity. Our proposed approach highlights deviations caused by deterministic estimates in TDBAC and makes our estimates more realistic. In addition, sensitivity analysis can be conducted with our proposed approach. Finally, all plausible conditions ranging from the worst case to the best case can be considered; therefore, insightful and appropriate managerial decisions can be made.

Utilizing Data Mining and Factor Analysis for Identifying Activity Base Costing Cost Drivers in Iranian Bank

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.

Comparison between the Mix-Based Costing and the Activity-Based Costing Methods in the Costing of Construction Projects

After bibliographic research on costing methods in civil construction, and a presentation of the mix-based costing method, as well as an application of the activity-based costing method in the costing of civil construction projects based on other authors, a possible application of the mix-based costing was sought. This method allows the distribution of costs and indirect expenses to products without the subjectivities and uncertainties typical of traditional apportionment, by means of analyses of different production scenarios. The main objective of this article is to compare the results obtained from activity-based costing and mix-based costing in the costing of civil construction works.

Cost Control of the Civil Engineering Based on Activity-Based Costing

In order to solve the current problems of cost management in civil engineering industry by using traditional management accounting systems, an effective method of activity-based costing is presented. Activity-based costing has been suggested as the leading contender method to replace traditional cost accounting systems, since its capability can make the processes and activities performed in the organization more transparent and observable. The paper attempts to develop a cost accounting system based on the activity-based costing ideas. The proposed method can provide the useful information to manage total processes in civil engineering. Nine operations are suggested in the proposed method, such as processing, pre-processing, post-processing, moving, and so on. As seen from the result of the case, the proposed method is of efficiency and feasibility.

Cost of outpatient endoscopic sinus surgery from the perspective of the Canadian government: a time‐driven activity‐based costing approach

The time-driven activity-based costing (TD-ABC) method is a novel approach to quantify the costs of a complex system. The aim of this study was to apply the TD-ABC technique to define the overall cost of a routine outpatient endoscopic sinus surgery (ESS) from the perspective of the Canadian government payer. Costing perspective was the Canadian government payer. All monetary values are in Canadian dollars as of December 2012. Costs were obtained by contacting staff unions, reviewing purchasing databases and provincial physician fee schedules. Practical capacity time values were collected from the College and Association of Registered Nurses of Alberta. Capacity cost rates ($/min) were calculated for all staff, capital equipment, and hospital space. The overall cost for routine outpatient ESS was $3510.31. The cost per ESS case for each clinical pathway encounter was as follows: preoperative holding ($49.19); intraoperative ($3296.60); sterilization ($90.20); postanesthesia care unit ($28.64); and postoperative day ward ($45.68). The 3 major cost drivers were physician fees, disposable equipment, and nursing costs. The intraoperative phase contributed to 94.5% of the overall cost. This study applied the TD-ABC method to evaluate the cost of outpatient ESS from the perspective of the Canadian government payer and defined the overall cost to be $3510.31 per case.

A Cost Analysis Case Study Of A Small Chinese Manufacturer

This study investigated whether a small firm, China Umbrella Factory Limited (CUFL), and in fact any firm in a developing country (mainland China), could benefit from a formal, activitybased costing system. 1 Many small firms, even more so than larger firms, find themselves particularly vulnerable to competitive challenges because the smaller firms lack the know-how and resources to know their true costs and profit margins. Smaller firms tend to use heuristics, or rules-of-thumb, in their estimation of costs as opposed to the bonafide use of more sophisticated and validated costing systems, whether traditional or activity-based costing (ABC). Comparisons of this firm’s current estimations of costs were made using both of these costing systems. Results indicated differences across the three methods. It was discovered that cost distortions that disfavored the estimation and traditional methods favored the ABC method. Notwithstanding the benefits found with using ABC, the firm decided not to adopt this method. A major constraining factor rested with the limitation of human resources – particularly with training in ABC as well as general management accounting. Furthermore since ABC, in a greater fundamental sense, benefits firms with significant overhead (when measured as a proportion of total cost), ABC would only provide limited benefits relative to the cost of implementation given the low-tech, primarily labor-based nature of this firm and its products.

Five-year economic evaluation of non-melanoma skin cancer surgery at the Costa del Sol Hospital (2006-2010)

The cost associated with treatment of non-melanoma skin cancer is expected to rise considerably over the coming decades. This important public health problem is therefore expected to have an enormous economic impact for the various public health services. To estimate the cost of the surgical-care process of non-melanoma skin cancer at the Costa del Sol Hospital and seek areas to improve its efficiency, using the activity-based costing (ABC) method and the tools designed for decision analysis. To compare the costs for hospitalized patients obtained using the ABC method with the data published by the Spanish Ministry of Health, using the diagnosis-related groups (DRG) classification system. Retrospective analysis of the cost of non-melanoma skin cancer surgery at the Costa del Sol Hospital. The total estimated cost from 2006 to 2010 was 3398540€. Most of the episodes (47.3%) corresponded to minor outpatient surgery. The costs of the episodes varied greatly according to the type of admission: 423€ (minor outpatient surgery), 1267€ (major outpatient surgery), and 1832€ (inpatient surgery). The average cost of an inpatient episode varied significantly depending on the calculation system used (ABC: 2328€ vs. DRG: 5674€). The ABC cost analysis system favours standardization of the care process for these tumours and the detection of areas to improve efficiency. This would enable more reliable economic studies than those obtained using traditional methods, such as the DRG.

Custeio das atividades das técnicas de nucleação implantadas nas clareiras abertas pela exploração petrolífera na Amazônia central

The objective of this work is to present the costs of nucleation techniques in environment restoration from damaged areas due to oil exploration at the Geologist Pedro de Moura Operation Base – BOGPM, identified by Petrobras as LUC 15, JAZ 104 and JAZ 94. Three nucleation techniques were used: topsoil, artificial perches and dead wood/sticks. Nucleation consists in forming propagation nuclei in small strategic points of the area to be restored. The technique takes advantage of existing natural resources in the area, which reduces the cost of restoration. We registered the time of execution from each activity, the manpower and the input used. The data was analyzed by the method of Activity-Based Costing (ABC). For the three techniques, we found that cleaning of the damaged area was the activity that consumed more resources. For the topsoil technique, the activity of collection and transportation of the forest floor were also identified. The use of topsoil was the most costly technique, followed by the activities of dead woods/sticks and artificial perches respectively. We suggest the use of nucleation techniques to promote soil recovery to increase the number of propagule seedlings, to attract wildlife, and to act strategically in the landscapes, while minimizing erosion and costs.

Apply Activity-Based Costing to Calculate Product Cost in Small and Medium Enterprises

Traditional costing (TDC) has been used many decades and very popular with organizations because it is simple and inexpensive. In today’s business environment, overhead cost has a significant proportion in total cost, using TDC for assigning overhead cost lead to inaccuracy of product cost. Activity-Based Costing (ABC), until now, is considered as a modern costing method that overcomes the limitations of TDC and it has been popular in developed countries. However, it is until new method in developing countries, so it needs to be more diffused in this countries.This paper conducted the project on ABC method in Van Chinh enterprise in Vietnam. We defined ten activities centers as shown in table 4. Then, we applied ABC method to calculate cost of products and compared with the results calculated by TDC method. This paper concluded that ABC method is practical and appropriate for such a Van Chinh enterprise and provides more accurate information for cost management and management decision-making.

Integrating Activity-Based Costing with Economic Value Added

Activity-Based Costing (ABC) was developed in the mid 1980s by Kaplan and it has been applied very popular in developed countries with obvious advantages. Although ABC system has more advantages than traditional costing (TC) system, but in today’s competitive economic environment it has not met fulfilled provision of sufficient information for decision-making, especially single ABC method ignores capital cost. The lack of capital cost is the reason why some products have inaccurate product costs and as results of that they have profit under ABC method but when capital cost is charged to those products, they cause a loss because they consume high invest fund. Imprecise information provided by single ABC method to managers is the reason why managers make inaccurate decisions. How to overcome this limitation of ABC? This paper researches on the integration of ABC with Economic Value Added (EVA™) as one way to overcome its limitation and innovation management accounting. Based on the data provided by Dong Su Company, this paper calculated profits of two customer groups using the new methodology (EVA-ABC) and also the old methodology (single ABC) to show how vague or inaccurate is the results you get when you use the old methodology and how accurate is the results you get when using the new methodology. The calculation showed that under EVA-ABC group 1 generates the value (13%) for this company but group 2 reduces the value of the business and destroy its capital (-8%). However under the single ABC method, the calculation showed that both two customer groups create profits for Dong Su with profit rate are 20% and 4% respectively which was incorrect.

English

  The goal of the present research is to study the activity-based costing system and the traditional system based on the volume comparatively in order to calculate the cost of the deposits in Refah Bank in Iran. Thus, first the deposit costs were calculated by using the volume based costing and then activity-based costing system was used to calculate the cost of deposits. In this research, the data from the whole branches of Refah Bank of Iran was used instead of focusing on the data gained from a limited number of branches. Also, regarding the existence of four different kinds of deposits, four different hypotheses were devised. Additionally, in an independent hypothesis, hypothesis 5, we studied the meaningfulness of the relationship between the ratio of staff's activities and the ratio of indirect costs of the deposits. The results show that there is not a meaningful difference between the cost calculated by activity-based costing and traditional method for current and saving deposits. But regarding the accounting calculations and the figure of cost ranking, there is a significant difference and activity-based costing system is absolutely more efficient than the traditional one. Also, the results of the research show that there is a meaningful difference between the cost calculated by activity-based costing and traditional system for long-term and other deposits. Also, the results of the research show that there is a meaningful relationship between the ratios of staff activities with overhead cost ratio for each of the deposits.   Key words: Activity-based costing (ABC), volume based costing, direct and indirect cost, over head appropriation bases.

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.

A new process-based cost estimation and pricing model considering the influences of indirect consumption relationships and quality factors

In a manufacturing environment containing complex consumption relationships and quality influences, the application of traditional activity-based costing (ABC) method is limited. In this paper, a new improved process-based model for cost estimation and pricing is presented. Through utilizing the input–output analysis method, the complex indirect consumption relationships (such as reciprocal relationships) of a manufacturing system are expressed. By solving these relationships, the consumption characteristics of all production activities (mainly presented by the activity rates) are extracted. Then with the consumption characteristics, the quality characteristics and usage amounts of these activities, the cost prices of products are estimated for their pricing. A case study is given based on the compressor products of a manufacturing company, and its effectiveness is shown. As the cost influences of complex consumption relationships and quality factors are fully considered, the proposed approach has a higher estimation accuracy than the traditional ABC method.

Hospital costs of nosocomial multi-drug resistant Pseudomonas aeruginosa acquisition

BackgroundWe aimed to assess the hospital economic costs of nosocomial multi-drug resistant Pseudomonas aeruginosa acquisition.MethodsA retrospective study of all hospital admissions between January 1, 2005, and December 31, 2006 was carried out in a 420-bed, urban, tertiary-care teaching hospital in Barcelona (Spain). All patients with a first positive clinical culture for P. aeruginosa more than 48 h after admission were included. Patient and hospitalization characteristics were collected from hospital and microbiology laboratory computerized records. According to antibiotic susceptibility, isolates were classified as non-resistant, resistant and multi-drug resistant. Cost estimation was based on a full-costing cost accounting system and on the criteria of clinical Activity-Based Costing methods. Multivariate analyses were performed using generalized linear models of log-transformed costs.ResultsCost estimations were available for 402 nosocomial incident P. aeruginosa positive cultures. Their distribution by antibiotic susceptibility pattern was 37.1% non-resistant, 29.6% resistant and 33.3% multi-drug resistant. The total mean economic cost per admission of patients with multi-drug resistant P. aeruginosa strains was higher than that for non-resistant strains (15,265 vs. 4,933 Euros). In multivariate analysis, resistant and multi-drug resistant strains were independently predictive of an increased hospital total cost in compared with non-resistant strains (the incremental increase in total hospital cost was more than 1.37-fold and 1.77-fold that for non-resistant strains, respectively).ConclusionsP. aeruginosa multi-drug resistance independently predicted higher hospital costs with a more than 70% increase per admission compared with non-resistant strains. Prevention of the nosocomial emergence and spread of antimicrobial resistant microorganisms is essential to limit the strong economic impact.

A Comparison of External and Endonasal Dacryocystorhinostomy in Regard to Patient Satisfaction and Cost

Background: Definitive treatment of nasolacrimal duct obstruction is with external or endonasal dacryocystorhinostomy (DCR). Recent trials suggest surgical equivalency between techniques. We sought to compare alternative outcomes of DCR techniques in terms of quality of life and cost.Methods: This study was a multicentre prospective nonrandomized case series comparing adult patients treated with external or endonasal DCR. Groups were allocated according to DCR technique. Participation did not affect treatment choice. The Glasgow Benefit Inventory (GBI) was utilized to compare postoperative quality of life, and an activity-based costing (ABC) method used to estimate costs of the two techniques. Surgical data were also collected. A minimum of 3 months follow-up was observed.Results: Seventy-seven patients were included—37 external and 40 endonasal. Both techniques resulted in positive health status change, with mean GBI scores of +16.1 for external DCR and +24.1 for endonasal (p = 0.18). Using an ABC method, the operative costs of external DCR were less than endonasal at $715.79 AUD and $932.52 AUD respectively.Conclusions: This trial suggests that external and endonasal DCR produce comparable outcomes in terms of postoperative quality of life, with external DCR resulting in lower operative costs.

The performance evaluation and comparison based on enterprises passed or not passed with ISO accreditation

PurposeThe purpose of this paper is to determine whether passing ISO accreditation can effectively enhance business performance, and further to explore the major contributions of ISO accreditation for companies. Although there are some current debates on the effectiveness of ISO9000, for many companies having ISO9000 accreditation is mainly for marketing purposes. However, no company really knows the detailed performance effects of ISO accreditation. In this study, both the Balanced Scorecard (BSC) and Activity Based Costing (ABC) methods are used to compare the direction and strength of each performance indicator for companies that have passed, or not passed, ISO accreditation.Design/methodology/approachCompanies in the manufacturing industry and service industry, with stocks listed in Taiwan's regular stock market and over‐the‐counter stock market, are selected as the research targets. A total of 212 valid questionnaires from the manufacturing industry and 120 from service industries are collected for further analysis of business performance using the BSC method. In addition, ABC measures are used to compare the performance difference through objective financial data.FindingsThrough qualitative and quantitative methods, this study develops key measurement indicators along four performance constructs based on the Balanced Scorecard. These include 38 indicators for the manufacturing industry and 32 indicators for the service industry. Through evaluation and comparison, the study shows that the pass of ISO accreditation by an enterprise can enhance its business performance and financial benefits. Higher effects are especially apparent in the manufacturing industry.Originality/valueThis study uses the concept of the BSC to construct performance measurement indicators and to evaluate the business performance of enterprises. In addition, the differences in business performance attributed to the pass or fail of ISO accreditation have been compared through BSC and ABC methods. From the performance analysis, it can clearly analyze the difference displayed by enterprises that have passed or not passed ISO accreditation. These results can be referenced by different industries when performing performance evaluation and strategy making.

Activity-Based Costing (ABC) and Time-Driven Activity-Based Costing (TDABC): Applicable Methods for University Libraries?

Objective – This article provides an overview of how university libraries research and adapt new cost accounting models, such as “activity-based costing” (ABC) and “time-driven activity-based costing” (TDABC), focusing on the strengths and weaknesses of both methods to determine which of these two is suitable for application in university libraries.
 
 Methods – This paper reviews and summarizes the literature on cost accounting and costing practices of university libraries. A brief overview of the history of cost accounting, costing, and time and motion studies in libraries is also provided. The ABC and the TDABC method, designed as a revised and easier version of the ABC by Kaplan and Anderson (Kaplan & Anderson 2004) at the beginning of the 21st century, as well as the adoption and adaptation of these methods by university libraries are described, and their strengths and weaknesses, as well as their suitability for university libraries, are analyzed.
 
 Results – Cost accounting and costing studies in libraries have a long history, the first of these dating back to 1877. The development of cost accounting and time and motion studies can be seen as a natural evolution of techniques which were created to solve management problems. The ABC method is the best-known management accounting innovation of the last 20 years, and is already widely used in university libraries around the world. However, setting up an ABC system can be very costly, and the system needs to be regularly updated, which further increases its costs. The TDABC system can not only be implemented more quickly (and thus more cheaply), but also can be updated more easily than the traditional ABC, which makes the TDABC the more suitable method for university libraries.
 
 Conclusion – Both methods are suitable for university libraries. However, the ABC method can only be implemented in collaboration with an accounting department. The TDABC method can be tested and implemented by separate departments, and thus can contribute to the provision of better and more effective library services at lower costs. However, the involvement of experts in costing and accounting is recommended.

Production Management for Manufacturing Based on Activity-Based Costing

In order to solve the current problems of cost management in manufacturing industry by using traditional management accounting systems, two-stage approach analytical method of activity-based costing is presented. The proposed method allocates indirect costs to products based on cost drivers of various levels. There are many advantages of the proposed method, it can make the production processes more transparent, help to identify production efficiencies, encourages managers to introduce corrective actions, allow the evaluation of corrective actions to be undertaken, reduce costs, and enhance competitiveness of enterprises. A case is analyzed, it is seem that the peoposed method is of efficiency and feasibility.

Filmless versus film-based systems in radiographic examination costs: an activity-based costing method

BackgroundSince the shift from a radiographic film-based system to that of a filmless system, the change in radiographic examination costs and costs structure have been undetermined. The activity-based costing (ABC) method measures the cost and performance of activities, resources, and cost objects. The purpose of this study is to identify the cost structure of a radiographic examination comparing a filmless system to that of a film-based system using the ABC method.MethodsWe calculated the costs of radiographic examinations for both a filmless and a film-based system, and assessed the costs or cost components by simulating radiographic examinations in a health clinic. The cost objects of the radiographic examinations included lumbar (six views), knee (three views), wrist (two views), and other. Indirect costs were allocated to cost objects using the ABC method.ResultsThe costs of a radiographic examination using a filmless system are as follows: lumbar 2,085 yen; knee 1,599 yen; wrist 1,165 yen; and other 1,641 yen. The costs for a film-based system are: lumbar 3,407 yen; knee 2,257 yen; wrist 1,602 yen; and other 2,521 yen. The primary activities were "calling patient," "explanation of scan," "take photographs," and "aftercare" for both filmless and film-based systems. The cost of these activities cost represented 36.0% of the total cost for a filmless system and 23.6% of a film-based system.ConclusionsThe costs of radiographic examinations using a filmless system and a film-based system were calculated using the ABC method. Our results provide clear evidence that the filmless system is more effective than the film-based system in providing greater value services directly to patients.