sabato 22 ottobre 2011


The central idea that quickly spread amongst both academic and practicing
accountants is that ABC tries to allocate overhead costs to cost object more
accurately than traditional system. ABC use cost drivers to allocate overhead
costs to cost object by firstly identifying those activities that drives costs
and then attribute costs to the product based on the amount of the cost driver
used by the cost object. ABC according to Homberg (2001) unlike conventional
costing system also considers non-volume related cost drivers such as the
heterogeneity of the product portfolio, making ABC a preferred costing method.
Homburg (2002) however finds problem with the way cost drivers are used in
allocating overhead costs.
(2002) analysed the effects of establishing a cost driver corresponding to a
higher cost level so as to capture demand heterogeneity triggered by portfolio
effect of certain activities where it is difficult to separate the level of
activity consumed by a particular cost object. What these studies still did not
treat is the fundamental problem of ABC which is the fact that it is complex
and consumes a lot of resources. It is hard to make managers rely on the cost
information generated by a system they themselves did not believe in or did not
fully understand at least.
et al (2011) are of the opinion that the non technical implementation problem
of ABC which includes the appalling level of reliance managers with non
accounting background place on the cost information generated through the ABC process
would be solved by involving those users of information generated from the use
of ABC at the early stage of the process ensuring that the sponsor is a member
of top management that will also introduce adequate training programme to
complement the ABC. While doing a case study to determine the level of
satisfaction derived by the users of ABC, Norris and Innes (2002) hypothesised
that how managers view ABC information depends on whether they adopt a personal
or organizational stance. This is to say that the accuracy of the cost
information so generated from the use of ABC is not as important as the
manager’s mindset. This hypothesis of Norris and Innes (2002) can be said to
sharply contrast the findings of the work of Cagwin and Bouwman (2002) which finds
a positive relationship between ABC and improvement in ROI when ABC is used
concurrently with other strategic initiatives. The direct implication of this
is that managers that really want their ROI to significantly improve will
disregard his or organizational stance and embrace ABC as a tool that
supplements other strategic tools. This is just an assumption that managers
will go against the principles and procedures of a company. No empirical work
has been done in this area to back up this point of view. In fact, people still
have mixed conception about the whole system and process of ABC.
concept of ABC according to Gosselin (2007), is subject to so varying
interpretation and its definition has over time evolved. This is evidenced by
the fact that many practitioners and people in the academic world have
described ABC and other management initiatives like balanced scorecard (BSC),
variance analysis, and return on investment as most important development in
management accounting. If what Gosselin (2007) posit about ABC is true, it then
means that ABC as a way of getting accurate cost information of products and
services have been put to different use by many. No wonder ABC have been
modified to fit into virtually all facet of life like: aerospace technology,
supply chain management, university administration, etc. The issue now is; if
cost information produced through ABC is actually as good as the orientation of
the manager in question as opined by Norris and Innes (2002), it then means
that the envious popularity that ABC commands amongst the business community
and engineering community is questionable. If mangers do not at all time rely
upon the accurate information produced by ABC to make their daily economic
decision, then the positive relationship that exist between financial
performance and ABC as found by Cagwin and Bouwman (2002) would be a mistaken
on the relevance and reliability of ABC method, Khataie et al (2011)
highlighted the importance interface role played by ABC to integrate Systems
Dynamic (SD) simulation with Mixed-Integer Programming (MIP) in the process
that produced a hybrid and enhanced Decision Support System (DSS). By providing
almost real-time and accurate information, DSS assist management decision
making in rendering the company more profitable, leaner, more responsive and
agile, Khataie et al (2011). Going by the observation of Khataie et al (2011),
one can argue that managers actually use the accurate cost information
generated by ABC but, when presented in a different format. This is as a result
of the fact that the enhanced DSS which produced the accurate and near
real-time cost information to managers is made possible by the linking role
played by ABC in the whole process. This observation no doubt raise a
fundamental question of the confidence reposed to ABC by managers if they
willingly utilise the information produced through the system except when
hidden in another system. This is a worrying development and against the
popularly held view that ABC has eaten deep into the fabrics of all business
process that has to do with cost information gathering and generation.
(2007) carried out a survey as to the adoption rate of ABC and found that
despite the fact that ABC has been fully incorporated in the syllabus of all
accounting training, its adoption rate still remained low. The argument against
this work is that the use of survey in management accounting research does not
provide valid data. Valid response cannot be obtained for questions like: why firms
implement ABC, how they implement it, or which decisions are based on ABC
information. In fact, it is even more difficult to evaluate to what extent ABC
is really used within organization. Gosselin (2007) argued that there are some
factors that can make the use of survey to ascertain the adoption rate of ABC
overstated, invalid and unreliable. One of such factors is the fact that most
respondents that participated in the survey are management accountants working
in the area and are independent of the perception of the managers. Secondly,
the concept of ABC is not clearly defined in most cases. This is an indication
that there may be confusion about what ABC is all about. Not minding these
weaknesses, Chetty (1996) pointed out that case study method allows research to
flow in the less common direction that other form of research finds difficult
to penetrate. Similar view is followed by Van Der Stede et al (2007) when upon
analysis of mail surveys in management accounting published in eight accounting
journals over a period of twenty years found that research survey in management
accounting has improved over time.
low level of adoption rate of ABC as found by Gosselin (2007) could possibly be
explained by the findings of Anderson et al (2002). Anderson et al (2002)
examined the dynamics of activity based costing development teams and level of
organizational resources devoted to the development to see if there is a
relationship between the level of complexity involved in ABC and development
time. They found that team cohesion is the key determinant of the time it takes
to develop the first ABC model. Meaning that ABC cannot be successfully
implemented in a place where there is a significant level of disagreement. All
things being equal, it then follows that the low adoption rate experienced by
ABC is as a result of the fact according to Norris and Innes (2002) that ABC is
managers’ perception dependent. This diverged opinion is even felt more when an
external consultant is present as everybody would want to prove a point that
his or her point of view about the usability of the cost information from ABC
process. It will not be out of context if one should reach a conclusion that
disorganization within a company is the main culprit responsible for ABC cost information
not actually used in most cases to make decision. This is in line with the
findings of Cohen et al (2005). According to them, companies that have
implemented ABC have experienced multidimensional management facilitating
benefits from the system. By multidimensional management, it means that more
than three group of management work congruently to achieve the common goal of
the organization. This same point of Cohen et al (2005) can be viewed from a
new perspective to mean that organized firms stand the chance of resisting ABC
and any information that it produces. They found that those that does not
accept ABC (ABC deniers) unanimously agree that the existing costing system
gives them what they what and are satisfied with that.
main implementation problems stems from inadequacy of capacity to undertake a
project. This acts as a viral problem that quickly spread and ignites other
implementation problems.
of the implementation problems according to Homburg (2004) can be overcome if a
heterogeneity perspective of using ABC and its properties which include the
cost information that it produces are followed rather than heuristic.
Heterogeneity in the context of Homburg (2004) is not fully defined but, if the
traditional meaning of the term (which means being diverse and interesting) is
to be used, one can then argue that this will make the process more complex and
technically more demanding. If this holds, it can then follow that managers
will not place much confidence and reliance on the cost information supplied by
ABC because of the fear of the unknown. There is no disputing the fact that
improved and heterogeneous cost driver improves the quality of ABC-heuristics
as posited by Homburg (2004), but, care should be taken when improving the already
too complex for most managers to manage.

at the country adoption rate of ABC, Lee (2002) stated that there have been
notable differences in the rates of ABC adoption in different countries in the
early days of ABC dissemination. Lukka and Granlund (1994) (as cited in Lee
2002) reported that no Finnish firms surveyed were using ABC but that about 30%
of Finnish firms were implementing or considering ABC adoption. If Lee (2002)
cited (Lukka and Granlund; 1994) right, it then means that the validity of the
data upon which their conclusion is based can be questioned. If no firm sampled
were using ABC costing method, it then means that the submission is either
based on intuition or on the work of others which might not be reliable. The
adoption rate of ABC in the US was higher around that period of time.
and Mitchell (1995) carried out a similar survey in the U.K and concluded that
although ABC significant number of large firms uses ABC costing method; its
impact is restricted in scope and has also been rejected by a good number of
people. This work of Innes and Mitchell (1995) is good with rigour unlike the
one that is referred to by Lee.
over the last few decades on an international scale have developed into
practically all facet of human endeavour and from all indication will continue
to do so unless the unexpected happens- which a complete reversal to the old
way of doing things or what many scholars called the era of inefficiencies in
accounting information processing.

the words of Jones and Dugdale (2002 pg. 1) while exploring the rise of ABC,
“ABC is formed, reformed, in processes of disembedding and reemebedding, and
how it becomes affiliated to ‘new wave management’…” This is more or less as
saying that ABC is a trial and error process with so many iterations going on.
In as much as there is no problem with a discipline growing in a chequered
manner, too much ado ought not to be given to a social science issue that
merely rely on ‘fire and miss’ basis. In the bid to describe ABC as an expert
system, Jones and Dugdale (2002) expressly referred to ABC as a socio-technical
expert system that is formed mutually with the construction of the
actor-networks that created it. This statement is consistent with the earlier assertions
made by some authorities (Norris and Innes (2002) for example) that the
implementation and reliability of managers on the information produced by ABC
is biased towards personal believes and ideology.
direct implication of this is that even the most empirical findings as regards
the level of reliance placed by managers on the information produced from ABC
of costing cannot be confidently relied on as it is somewhat difficult to
entirely remove the human error and most importantly personal bias.
et al (2011) while seeking an answer into the effect of system type and the
performance of ABC as measured by the level of reliance on the cost information
produced through ABC found that the kind of system in which a company operate
plays an important role in the successful implementation of ABC as a costing
system. Development inputs and user perception performance were tested on three
different types of systems (embedded, stand alone, and ad-hoc). Embedded and
stand alone systems enjoyed more support from management which is classed as an
element of the inputs. This observation would have led one to believe that
these systems would perform better but their findings showed otherwise. Both
the embedded system and stand alone systems performed significantly well less,
Pike et al (2011). The implication of the work of Pike et al (2011) is that ABC
information is not used by managers in decision making. If it does, it will be
difficult to supply an acceptable reason for the near failed implementation experienced
by the two types of systems that were given full support of top management.
and Dugdale (2002) quoted (Abrahamson, 1996) as referring to management
accounting techniques as fashion promoted by both internal and external forces
in such a way that over time the followers of the fashion will have no choice
but to change their belief about the fashion. The conclusion of Abrahamson
(1996) (as cited in Jones and Dugdale, 2002) could be taken to be the cause of
the lackadaisical attitude of some managers in utilizing the information
produced by ABC system when the company they represent choose to adopt ABC.
This thinking will not be out of context if this assertion is true. If industry
participants know that management philosophy proponents do all that they can to
sell their ideas to them will develop thick skin to all that management
accounting engineers come up with. This resistance however will not be so long
before it way.

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