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Activity-Based Costing ( ABC )

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Activity-Based Costing ( ABC )


The business environment in the 1990s is markedly different from that
of the past when conventional cost accounting procedures were
established. Activity-based costing (ABC), pioneered in the late
1980s, offered a new costing approach consistent with the changed
environment. However, ABC did not diffuse rapidly into the business
community. This article demonstrates why adopting ABC is important by
documenting the potential of ABC in supporting contemporary managerial
decision making.


Everything happens faster in business today. Even new management tools
(some say "fads") follow a meteoric path. For example, the ink on new
articles describing activity-based costing (ABC) was hardly dry before
consulting firms had integrated it into their slick brochures and
presentations. All they needed was someone to use it. To illustrate,
Romano identified only 110 installations by August 1990, nearly two
years after the procedure was developed, with 77 percent of these in
two major firms [13]. Perhaps this phase, in the process of
introducing the new procedure, could be called "the period of wild
over-promise." However, even by the mid-1990s, ABC has not spread
widely throughout the industry and "even in large firms, widespread
success of ABC is not obvious" [16].

According to Ness and Cucuzza, "thousands of companies have adopted or
explored the feasibility of adopting ABC. However, (they) estimate
that no more than ten percent o...

... middle of paper ...

12. Port, O. "Custom-Made, Direct from the Plant." Business Week,
November 18, 1994, p. 158.

13. Romano, P.L. "Trends in Management Accounting." Management
Accounting, August 1990, pp. 53-56.

14. Roth, A.V., C. Gaimon, and L. Krazewski. "Optimal Acquisition of
FMS Technology Subject to Technological Process." Decision Sciences,
Vol. 22, No. 2, Spring 1991, pp. 308-334.

15. Schonberger, R.J. and E.M. Knod Jr. Operations Management:
Continuous Improvement. Richard D. Irwin, 1994, p. 44.

16. Selto, F.H. and D.W. Jasinski. "ABC and High Technology: A Story
with a Moral." Management Accounting, March 1996, pp. 37-40.

17. Smith, R.B. "Competitiveness in the '90s." Management Accounting,
September 1989, pp. 24-29.

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