Use Of Activity-based Costing Research Articles

Comparative Analysis Of Cost Calculation With Activity-Based Costing And Traditional Methods

In the modern business world, accurate cost calculation is crucial for effective decision-making. Traditional methods often fail to reflect actual resource consumption, leading to inaccurate pricing and resource allocation. This research aims to analyze the use of Activity-Based Costing (ABC) and compare it with traditional methods. The research approach is qualitative, employing literature review methods. The findings show that ABC, which allocates costs based on activities performed, provides more realistic and accurate cost estimates. ABC helps companies identify non-value-added activities, improve efficiency, and reduce waste. Although ABC is more complex and expensive to implement, it provides more precise cost information, supporting optimal decision-making regarding pricing, product strategy, and resource allocation. Conversely, traditional methods are simpler but often result in less accurate cost allocation and do not reflect variations in activity consumption. Therefore, ABC is superior in terms of accuracy and effectiveness in identifying waste and inefficient activities, despite requiring technological support and higher initial costs.

Pengendalian Biaya Tenaga Kerja dalam Organisasi Sektor Publik: Studi tentang Pengelolaan Pegawai Tidak Tetap (PTT) dan Alternatif Outsourcing

This article discusses the management of labor costs in the public sector with a focus on the management of non-permanent employees (PTT) and outsourcing alternatives. This research highlights problems in personnel management, especially employee expenditure costs that must be borne by government agencies. This study reviews cost control systems, labor costs, and methods for managing honorary staff costs in government. The findings show that outsourcing is more efficient than recruiting PTT or temporary workers as a solution to control labor costs. Additionally, this paper recommends Activity Based Costing (ABC) method for public sector organizations to provide valuable information related to detailed cost data. This research shows that decentralizing recruitment in local governments can improve efficiency, effectiveness and fairness, but can also lead to corruption and disparities in the distribution of human resources. Cost control, outsourcing, and the use of Activity-Based Costing (ABC) can help public sector organizations manage costs and increase operational efficiency. To achieve better governance, operational efficiency and effective cost control, public sector organizations need to consider the various strategies and methods described in this research.

Maintenance cost estimation: application of activity-based costing as a fair estimate method

Purpose – The purpose of this paper is to present the use of activity-based costing (ABC) approach as an alternative option to the traditional cost accounting system. The contribution of this study is to demonstrate, through a simple example, the application of that costing system in a service (maintenance) industry, i.e. the paper intended to develop a procedure for a cost model that help in calculating any maintenance job cost, to a reasonable degree of accuracy, based on the actual activities performed. Design/methodology/approach – This research uses a simple example whereby hypothetical activities and cost data of maintaining an injector and a pump, of an internal combustion engine, are used, presented and analyzed based on the use of the developed procedure. Findings – ABC system provides more accurate cost estimates rather than the traditional “order costing” methods that uses unit-level costs which are variable in relation to change in service volume. Traditional cost methods distort the costs by applying overhead uniformly over different jobs of varied complexities and activities scope. On the other hand, ABC is a useful means to distribute the overhead costs in proportion (fairly) to the actual activities performed in a specific job and, hence, enhance the rationality of decision making, i.e. will not distort the accounting information used for cost reduction, pricing, and evaluation matters. The results obtained from the analysis showed that allocating costs to the maintained injector decreased from $83.55 to $71.95 and, finally, to $67.57 when using the workshop-wide, two-stage and ABC overhead allocation methods, respectively; while that of the pump increased from $298.90 to $340.34 and, finally, to $359.48 when using the same three methods, in the same order, respectively. The result is quite fair when considering the complexity of the fuel pump, in terms of design and maintenance, when compared with the injector. Notice that using volume to allocate overhead costs results in over costing high-volume products, e.g. injectors (simple in terms of design and operation) and under costing low-volume products, e.g. pumps (more complex in terms of design and operation). The paper recommends to use ABC as a more accurate and fair method when charging maintenance job orders based on the analysis of costing two maintained items in the same premise while consuming different overhead resources. Practical implications – This study attempts to analyze different methods to calculate a specific corrective maintenance job order. It strives to remedy the drawbacks of the traditional overhead costing of a job order when using principles related to the size of service, such as the direct labor cost/hours, as an allocation base. Consequently, the study proposed a new costing method, i.e. application of ABC. The traditional costing approach is considered by many firms as the best costing method. Nevertheless, it allocates overhead cost over job performed uniformly (equally) not differentiating between the complexity of the job and variety of the activities performed, e.g. using the same allocation base for “oil change” and “fuel pump adjustment” activities. So, ABC prevents cost distortions (unfairness) that could not be prevented by traditional cost accounting system. The author believes that the method presented in this paper will provide a useful management tool for costing maintenance jobs based on the appropriate selected activity drivers in maintenance workshops. The method could be applied for costing maintenance activities in maintenance of all industrial sectors. Originality/value – The use of traditional costing method has proven to be distorted by applying overhead uniformly over different jobs of varied complexities and activities scope. In this paper the authors strive to present an effective costing alternative that outperforms the traditional ones with regard to overhead allocation. The paper aims to find reliable and fair maintenance costing method, i.e. to find out the relationships between maintenance activities and cost drivers. Although, ABC is widely used in manufacturing industry, no application or current research has presented an applicable thorough worked-out example, with the exception, to the author’s knowledge, of one in the aeronautical industry, to implement ABC method in maintenance industry. The importance of using this method comes from the fact that it provides, relatively, accurate and fair maintenance bills that provide customer satisfaction and firm good image. Hence, the paper is relevant in this respect and intended to contribute to the practice of maintenance management.

Price-transparency and cost accounting: challenges for health care organizations in the consumer-driven era.

Health care reform is directed toward improving access and quality while containing costs. An essential part of this is improvement of pricing models to more accurately reflect the costs of providing care. Transparent prices that reflect costs are necessary to signal information to consumers and producers. This information is central in a consumer-driven marketplace. The rapid increase in high deductible insurance and other forms of cost sharing incentivizes the search for price information. The organizational ability to measure costs across a cycle of care is an integral component of creating value, and will play a greater role as reimbursements transition to episode-based care, value-based purchasing, and accountable care organization models. This article discusses use of activity-based costing (ABC) to better measure the cost of health care. It describes examples of ABC in health care organizations and discusses impediments to adoption in the United States including cultural and institutional barriers.

Change in the relevance of cost information and costing systems: evidence from two Italian surveys

This paper aims to contribute to the stream of the “costing system change” research agenda by studying the role played by contextual factors, adopting a demand-side approach (Ax and Bjornenak in Issues in management accounting. Prentice Hall, New Jersey, 2007), and by highlighting the movements of change in the adoption and use of Activity-Based Costing (ABC) and Target Costing (TC) (Burns and Vaivio in Manag Account Res 12(4):389–402, 2001; Schoute in Br Account Rev 43:120–134, 2011). Thus, the possibility of costing change with ramifications beyond those typically studied in the literature concerning the functional view of cost accounting is discussed and demonstrated (Sturdy in Manag Learn 35(2):155–179, 2004; Tsoukas and Chia in Organ Sci 13(5):567–582, 2002). This paper compares the results of two surveys over a decade apart on two samples of large-size manufacturing companies (132 and 86 companies, respectively) that investigated changes in cost objects, costing purposes and the adoption and use of two advanced costing techniques, ABC and TC. The findings reveal an increase in the number of cost objects considered, a wider use of cost information for managerial purposes and a slight increase in the use of ABC and TC in the sample. The discussion shows an increase of awareness of potentiality of cost information to support decision-making, and a refinement of cost allocation processes. The presence of “forward” and “backward” movements of ABC and TC changes in adoption and use, addresses the possibility that costing change has different directions than those usually considered under a rational view of cost accounting.

Applying KM matrix and LCA theory to organizational development

The purpose of this study is to examine how knowledge management has been applied in the business development life cycle. In addition, a proposed knowledge matrix is utilized in conjunction with a production pipeline. This study discusses three of the four different business life cycle stages and their related strategies. Life cycle analysis (LCA) theory is adopted in both the organizational development and knowledge management stages. The knowledge involved in running a business can be represented as a strategic resource which can help to enhance competitive advantage. However, this advantage will be eroded if the company does not continually update its knowledge. Several interesting findings are discussed in this study, such as how globalization affects the profit efficiency of firms implementing different knowledge management strategies. Moreover, this work will also consider which form of knowledge management is most important at different stages of the life cycle of a business. The contribution of this study is that it investigates whether the life cycle of the business plays a role in the use of activity-based costing, quite apart from the actual size of the business. Earlier studies report that the use of activity-based costing increases along with the size of firms. However, although those businesses in the maturity and revival phases of their life cycles are often larger than firms in a growth phase, not all of them can be considered as large companies. A case study of the Taiwanese company that sells golfing products to global market is examined, and several useful strategies are presented for managers. Key words: Knowledge management, life cycle analysis, organization development.

Manufacturing feature-based cost management system: a case study in Brazil

Feature costing is a topic of recent discussion related to cost management systems (CMSs) aimed at understanding how product features influence production process costs. It raises as a key issue in mass customisation environments where a single product model can present hundreds of menu options. In this study, we explore the concept of feature costing beyond the use of activity-based costing (ABC). We propose a CMS based on features and common elements as costing objects instead of products. In our model, we use the unit of production effort method to organise the direct manufacturing costs, ABC method to address the indirect cost and the standard methods to compute raw materials costs. We illustrate the method in the production of bus seats in a Brazilian manufacturing company. This study gives different perspectives to the international academic community on the use of a different CMS used by many Brazilian companies.

The Incidence and Perceived Managerial Merit of Customer Accounting in New Zealand

Purpose – Two prior survey papers on the use and perceived merit of customer accounting practices, one in Australia and one in New Zealand, disclosed contrasting results with confusing elements. This survey replicates and extends the previous research to update and clarify our understanding of the use and perceived merit of Customer Accounting (CA) practices in New Zealand. Design/methodology/approach – A mail questionnaire survey was sent to 136 companies quoted on the New Zealand Stock Exchange, resulting in 44 useable responses (32.4%).Findings – This survey finds that mean scores for the usage and perceived merit of CA practices in New Zealand in 2009 are similar to those found in Australia in 2002, and much higher than those found in New Zealand in 2007. Also, a relationship between the use of activity-based costing (ABC) and the perceived merit of CA practices was found, but no relationship with actual CA usage. The research also found a strong positive relationship between the adoption of the customer concept of marketing management and the usage of customer profitability analysis at an individual customer level.Research limitations/implications – The survey method prevents follow-up questions and clarification of ambiguities, but the survey results point to several areas warranting further research.Originality/value – This survey provides academic researchers, teachers, and firms using, or considering the use of CA practices, improved understanding of the extent of current usage and perceived managerial merit of CA practices in New Zealand companies.

The implementation of activity-based costing and the financial performance of the Jordanian industrial shareholding companies

The purpose of this study is to investigate the improvement in financial performance associated with the use of activity-based costing (ABC). Data were obtained through a cross-sectional mail survey of financial managers who furnished information regarding company financial performance, the extent of ABC usage, and the enabling conditions that have been identified in the literature as affecting ABC efficacy. Data were obtained from the Jordanian shareholding companies as of the end of 2009. Regression analysis is used to test the association between the awareness level of using ABC and the level of adopting ABC. It is also used to identify the improvement in ROA as a mean of financial performance which associated with ABC initiatives. Results show that the awareness level of using ABC is high among the financial managers, but ABC implementation is not high; also it is found that there is a positive association between ABC and improvement in ROA.

Activity-Based Costing in the Hospitality Industry: Evidence From Greece

The purpose of this article is to provide some empirical evidence of the current general trends regarding the practical consideration, adoption, and use of activity-based costing (ABC) in the hospitality industry. To this end, a survey was conducted with 85 firms of the Greek hotel sector with the use of questionnaires. Results showed that the adoption rate of an ABC system could be considered rather satisfactory. For the hotels that have adopted ABC, the survey showed that they apply it throughout all the core areas of management accounting, especially in pricing decisions and customer’s profitability analysis. The nonusers reported that the main reason for rejecting it is the satisfaction of the existing cost accounting system and the high cost of an ABC implementation.

The Effect of Organizational Life Cycle Stage on the Use of Activity-Based Costing

This paper investigates if the use of an activity-based cost accounting system differs among firms in different organizational life cycle stages. We apply the Miller and Friesen (1983, 1984) life cycle model according to which the internal characteristics of firms and the external contexts in which the firms operate differ across firms depending on their stages of development. Based on the organizational life cycle theories we hypothesize that the use of the activity-based costing is more common among firms in maturity and revival phases than among firms in a growth phase. Our empirical analyses based on a questionnaire to 105 Finnish firms operating in various industries and in different life cycle stages support our hypothesis. We conduct various robustness checks of the results using several control variables and checking the effect of potential non-response bias. Our results remain essentially the same.

Investment justification of advanced manufacturing technology: a review

This paper reviews a wide range of literature on the investment justification of Advanced Manufacturing Technologies (AMTs). It provides an updated and a comprehensive perspective of the issues surrounding the problem of investment justification of AMT and provides some direction for future research such as the design and development of standard modules of the hardware elements comprising AMT, the need to popularise the use of Activity-Based Costing (ABC) systems, and pooling information from different users of AMT across the globe, which could be used for technology appraisal and also for ascertaining the expected benefits from a certain level of technology. As well, evolutionary characteristics and future directions of AMT appraisal and justification approaches are described with research directions identified.

The association between activity-based costing and improvement in financial performance

This study investigates the improvement in financial performance that is associated with the use of activity-based costing (ABC), and the conditions under which such improvement is achieved. Internal auditors furnish information regarding company financial performance, extent of ABC usage, and enabling conditions that have been identified in the literature as affecting ABC efficacy. Confirmatory factor analysis and structural equation modelling are used to investigate the relationship between ABC and financial performance.Results show that there indeed is a positive association between ABC and improvement in ROI when ABC is used concurrently with other strategic initiatives, when implemented in complex and diverse firms, when used in environments where costs are relatively important, and when there are limited numbers of intra-company transactions. In addition, measures of success of ABC used in prior research appear to be predictors of improvement in financial performance.

Research into product costing practice: a European perspective

This paper summarizes and reviews research of product costing practice in Europe. The review considers research into how many accounting systems firms use, product cost structures, the use of blanket overhead rates in product costing, the bases used to calculate overhead rates, the application of product costs in decision making and product pricing, and the use of activity-based costing. Although significant progress has been made over the last decade in describing costing practices in Europe, further work remains to be done. Having identified gaps in, and questions arising from, previous research, the paper concludes with recommendations for future research.

Research into product costing practice: a European perspective

This paper summarizes and reviews research of product costing practice in Europe. The review considers research into how many accounting systems firms use, product cost structures, the use of blanket overhead rates in product costing, the bases used to calculate overhead rates, the application of product costs in decision making and product pricing, and the use of activity-based costing. Although significant progress has been made over the last decade in describing costing practices in Europe, further work remains to be done. Having identified gaps in, and questions arising from, previous research, the paper concludes with recommendations for future research.

Stock market reactions to activity-based costing adoptions

The use of activity-based costing (ABC) has been steadily, if not rapidly, spreading on an international level. This fact notwithstanding, the economic benefit associated with adopting ABC is suspect, at best. In an effort to shed additional light on this apparent dilemma, this paper empirically investigates the stock market effects of announcing the adoption of an ABC system. The research methodology includes both parametric and non-parametric tests for excess market returns from a seemingly unrelated regressions model with a matched pairs sample of firms. The analysis indicates that the installation of an ABC system in the United States is not associated with a significant (either positive or negative) stock market reaction.

Use of activity-based costing and economic value analysis for the justification of capital investments in automated material handling systems

This paper develops a two-stage method for the justification of investment in modern material handling systems. The underlying approach places heavy emphasis on the use of cost avoidance data quantified by activity-based costing systems. The first stage collects the life-cycle costs and benefits resulting from the reconfiguration of material handling systems in manufacturing facilities. A recently developed software package for process modelling and management is employed to capture the characteristics of material handling activities and to derive accurate applied cost rates for each activity and material handling system combination. These activity-related cost data as well as various opportunity costs are incorporated in a case-specific, investment decision model that constitutes the second stage of the method. The model performs an Economic Value Analysis for each material handling alternative. In doing so, it offers a sound basis for economic comparison of different systems. A case study illustrates the merit of our two-stage method in decision making by placing an accurate and reliable economic value on the transition from manual to automated material handling in a manufacturing facility. The use of activity-based costs reverses the decision of sustaining the 'status quo' supported by a traditional investment justification approach restricted to solely labour cost reductions