Activity-Based Costing ( ABC ) Essay -- Essays Papers

Activity-Based Costing ( rudiment ) Summary The military control environment in the 1990s is markedly different from thatof the past when ceremonious cost accounting procedures wereestablished. Activity-based costing (ABC), pioneered in the late1980s, offered a new costing approach consistent with the changedenvironment. However, ABC did not diffuse rapidly into the businesscommunity. This article demonstrates why adopting ABC is important bydocumenting the potential of ABC in supporting contemporary managerialdecision making.Introduction Everything happens faster in business today. Even new management tools(some say fads) follow a meteoric path. For example, the ink on newarticles describing activity-based costing (ABC) was hardly dry in the first placeconsulting firms had integrated it into their slick brochures andpresentations. All they needed was someone to use it. To illustrate,Romano identified only 110 installations by August 1990, nearly twoyears later on the procedure was developed, with 77 portion of these intwo major(ip) firms 13. Perhaps this phase, in the process ofintroducing the new procedure, could be called the period of wildover-promise. However, even by the mid-1990s, ABC has not spreadwidely throughout the industry and even in large firms, widespreadsuccess of ABC is not obvious 16. concord to Ness and Cucuzza, thousands of companies have adopted orexplored the feasibility of adopting ABC. However, (they) estimatethat no more than ten percent of companies now use activity-basedmanagement in a significant number of their operations 11. A surveyconducted by the Institute of Management Accountants cost managementgroup found that only 29 percent of companies used ABC instead oftraditional systems, but this was an increase from 25 percent in theprevious year 10. Among reasons cited for low adoption were employeeresistance and major organizational changes required with the use ofABC 11. Some trace the source of slow adoption of ABC to techn icalas well as heathen issues 5. Others feel that ABC would be morewidespread in industry if it were marketed better by the costaccounting profession itself 1.As the dust has settled, ABC has turned out to be less a revolutionarytechnique than a useful refinement to proven systems. The costs ofproducts and services must be accurate, or management can be misled.Decisions... ...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. much Companies Turn to ABC.Journal of Accountancy, July 1994, p. 14.11. 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.