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
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 . 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" .
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 of companies now use activity-based
management in a significant number of their operations" . A survey
conducted by the Institute of Management Accountants' cost management
group found that only 29 percent of companies used ABC instead of
traditional systems, but this was an increase from 25 percent in the
previous year . Among reasons cited for low adoption were employee
resistance and major organizational changes required with the use of
ABC . Some trace the source of slow adoption of ABC to technical
as well as cultural issues . Others feel that ABC would be more
widespread in industry if it were marketed better by the cost
accounting profession itself .
As the dust has settled, ABC has turned out to be less a revolutionary
technique than a useful refinement to proven systems. The costs of
products and services must be accurate, or management can be misled.
... middle of paper ...
...8. Lewis, R.J. "Activity-Based Costing for Marketing." Management
Accounting, November 1991, pp. 33-38.
9. Lofgren, G.Q. "Quality System Registration: A Guide to Q90/ISO 9000
Series Registration." Quality Progress, May 1991, p. 37.
10. "More Companies Turn to ABC."Journal of Accountancy, July 1994, p.
11. Ness, J.A. and T.G. Cucuzza. "Tapping the Full Potential of ABC."
Harvard Business Review, July/August 1995, pp. 130-131.
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.
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
- Activity Based Costing ACTIVITY BASED COSTING AND MANAGEMENT : AN OVERVIEW Activity Based Costing (ABC) is more relevant than traditional costing in companies, where product mix is diverse in; batch sizes, physical sizes, degree or complexity, and raw material characteristics. ABC will also provide more decision useful information for the service industry, characterized by diversity in range of services provided. If the products in a plant or services provided posses similar characteristics, wither volume based or an activity based cost driver will provide reasonably accurate costs.... [tags: GCSE Business Marketing Coursework]
1441 words (4.1 pages)
- Activity-Based Costing ( ABC ) Summary 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.... [tags: Essays Papers]
3359 words (9.6 pages)
- In this section of the report, we shall discuss the interlinked processes of Activity Based Costing, Activity Based Budgeting and Activity Based Management by using the help of certain diagrams and also touch upon the evolution of the Activity Based approach over time. The diagram shown above explains how costs are assigned to a product under the ABC approach. ABC first assigns costs to the activities that are the real cause of the overhead and then assigns the cost of those activities only to the products that are actually demanding the activities.... [tags: activity based, costs, abc approach]
1326 words (3.8 pages)
- Activity-based funding (ABF) “has captured the imagination of some policy-makers as an alternative to global budgets” (Palmer & Guyatt, 2014), with hospitals in Europe, Canada, Victoria, and Western Australia currently being financed by activity based funding and more making the switch. This essay will examine the practice of Activity based funding and determine if value is being added with regards to costing within hospitals and to what extent. Activity based funding may be considered by the government, for Australia’s public hospitals to attract cost reduction and efficiency increases.... [tags: Costs, Cost, Activity-based costing]
1820 words (5.2 pages)
- Introduction Activity-based costing (ABC) is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” as well as variable costs. Activity-based costing is mostly used for internal decision making and managing activities while traditional costing method is used to provide data for external financial reports. Most organization uses activity-based costing as an addition system for using traditional absorption costing as sometimes the traditional cost system misleads the product’s profitability.... [tags: Costing Methods, Cost Information, Managers]
1171 words (3.3 pages)
- Introduction The contained paper has been prepared with objectives of elaborating over the three different costing methods namely, Absorption/Full Costing, Variable/Marginal Costing, and Activity Based accounting. The first segment of the report seeks to define and illustrate the costing methods based on the personal understanding of the writer gained through the class room and the academic readings. Part two of the report takes a form of short essay, written critically to evaluate the application of standard costing and variance analysis to any size of business, and concludes with a verdict that whether or not standard costing and variance analysis is applicable to each business with consid... [tags: Activity Based Accounting]
2524 words (7.2 pages)
- Introduction Activity Based Costing (ABC) addresses internal operating concerns and is an augmentation to the traditional cost management system. It is not a replacement for traditional accounting, but makes use of the source documents provided from standard job costing systems. ABC looks at a business unitâ€™s events as cost drivers and assigns all company resources and accumulated costs against those events in a time-phased sequence. Revenue tracking provides management with a different point of view on the profitability of products and services, providing insight into pricing.... [tags: essays research papers]
940 words (2.7 pages)
- Time-Driven Activity Based Costing Activity-based costing (ABC) is a costing method that is usually used as a supplement to a company’s usual costing system, and is therefore used for internal decision-making. It is designed to inform managers of costing information for decisions (strategic and others) that potentially affect capacity and consequently “fixed” as well as variable costs. In addition, ABC can also be used to pinpoint activities that would benefit from process improvements. Traditional ABC problems The traditional Activity-Based Costing is implemented using the following steps : Define activities, activity cost pools, and activity measures.... [tags: managers, decision making, cost allocation]
2024 words (5.8 pages)
- Activity-based funding (ABF) is widely used in the manufacturing industry and is becoming a common costing method in health care. Hospitals in Europe, Canada, Victoria and Western Australia are currently being financed by activity based funding and more are making the switch. This essay will examine the practice of Activity based funding and determine if value is being added with regards to costing within hospitals and to what extent. The reasons why ABF would be considered by the government in Australia’s public hospitals are; cost reduction and efficiency increases.... [tags: Costs, Cost, Hospital, Decision making]
1574 words (4.5 pages)
- Strategic Applications of Activity Based Management in Air Transportation Abstract This paper attempts to link the benefits of Activity Based Management and Activity Based Costing to the strategic success of the air transportation industry. The paper hypothesizes that the failure or suffering of the air transportation industry is connected to its use of an unfitted traditional cost accounting method. The resolution to the situation is to apply activity based accounting methods in the management of aviation related industries to produce a strategic, competitive advantage and resurrect the industry from bankruptcy.... [tags: Air Transportation ]
1616 words (4.6 pages)