...The implementation of Activity Based Costing (ABC) in Chinese refining manufacturers Table of contents 1. Introduction 2 1.1 Research background 2 1.2 domestic and foreign research status 4 1.2.1 Activity-based costing development process 4 1.2.2 Status quo of Activity-Based Costing Development and Application in China 6 1.3 research contents 8 2. Related theories 9 2.1concept of ABC 9 2.2 rationales 10 2.3 difference between ABC and traditional costing 12 2.3.1. Different calculating targets 12 2.3.2 Different calculation 12 2.3.3. Different Finished goods costs term 13 3. Research methodology 13 3.1 case study 13 3.2 The survey method 13 3.3 Literature 14 4. Research Results 14 4.1 problems of traditional costing method in oil refining enterprise 14 4.2suggestions for Chinese enterprises’ application ABC 15 Bibliography 15 1. Introduction 1.1 Research background With the rapid development of the national economy, enterprises’ competition is increasingly fierce; many companies are using advanced science and technology to achieve competitive advantage in the market. Market competition and technological progress are the two fundamental economic factors which generate activity-based costing. Since The beginning of 1980s of the 20th century, the activity based cost method is paid a wide range of attention; the developed countries gradually adopt it in a number of advanced enterprises...
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...Activity Based Costing By: Azalea McSwain ACC310: Cost Accounting 1 Instructor: Susan Paris Date: April 18, 2011 Outline I: Introduction a. What is Activity Based Costing b. How Does it Work II. Body a. What does ABC do for Firms b. How to develop the ABC system in a firm c. What are the Steps d. Examples III. Conclusion IV. References Abstract Activity Based Costing was developed in the manufacturing sector of the United States during the 1970’s and 1980’s. This system is used as a method for developing cost estimates in which projects were discrete or subdivided activities. ABC systems calculates the costs of individual activities and assigns costs to their related cost object such as products and services on the basis of the activities performed to produce each product. The Chartered Institute of Management Accountants (CIMA) technology defines ABC as “an approach to the costing and monitoring of activities which involves tracing resource consumption and costing final outputs. (Edwards, 2006)” This paper will address what the ABC system does for firms which use it, how to develop such a system in a firm, the steps of the ABC system and some common examples. Activity Based Costing Introduction Activity Based Costing (ABC) addresses internal operating concerns of a firm and is an augmentation to the traditional ledger based cost management system. It doesn’t replace traditional accounting, but it makes use of the source documents provided from...
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...Chapter 8 Activity-based costing Problems with conventional product costing systems General features of conventional product costing systems Direct material and direct labour costs are traced to products Manufacturing overhead costs are allocated to products using a predetermined overhead rate Manufacturing overhead rate is calculated using some measure of production volume Non-manufacturing costs are not assigned to products Problems with conventional product costing systems Failure to adapt to the changing business environment Increasing levels of non-volume-driven manufacturing overhead costs Increasing proportion of non-manufacturing costs Causes of changes in costs Changing product structures and increased product diversity 5 Indicators of problems with a product costing system Product costing systems are likely to result in inaccurate product costs when … Proportion of direct labour costs decreases Proportion of manufacturing overhead costs increases Proportion of manufacturing overhead costs, not related directly to production volume, increases Non-manufacturing costs that are product-related become substantial Product diversity increases Problems with costing in service businesses Service firms...
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...Health Specifics of the Activity-Based Applications in Hospital Management Boris Popesko * Tomas Bata University in Zlin, Czech Republic * Corresponding Author; Email: popesko@fame.utb.cz Abstract Paper analyses the specifics of the application of Activity-Based Costing method in hospital management. Primary objective of the paper is to outline the methodology of the ABC application in hospitals. First part of the paper analyzes the ways of ABC implementation in published foreign studies. Second part describes the individual steps in ABC application and discusses the differences in the application procedures between the manufacturing and hospital organization. Key words: Healthcare Management, Cost Management, Activity-based costing, Introduction In the last decade, many non-profit and hospital organizations started to face difficulties and challenges in balancing limited resources and costs to provide their demand for services. Due to the introduction of modern medical techniques and medicines and consequent increase of consumed costs, many hospitals are under pressure to adopt more advanced cost management techniques usually utilized only in profit organization sector. Hospital managers frequently seek the advanced techniques, for better understanding of relations between the cost and provided services. One of the key factors of effective company management is ability of accurate estimation of the cost of products. Product costing is an essential economic tool...
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...2010-023X Factors Influencing Activity-Based Costing Success: A Research Framework Zhang Yi Fei and Che Ruhana Isa becoming more and more popular [3-7] ABC aims to provide accurate costing information to managers to allocate activity costs to products and services by applying cost drivers [8]. Academics who advocate ABC, such as, Cooper and Kaplan [9], and Swenson [10] argue that it provides more accurate cost data needed to make appropriate strategic decisions about product mix, sourcing, pricing, process improvement, and evaluation of business process performance. These claims have led many firms to adopt ABC systems [8]. The benefits of ABC and its positive impact on firm’s performance motivated a numerous studies which examined various aspects of ABC. Among such studies are McGowan [11] who assessed the integrity of ABC success, Innes and Mitchell [4, 12] and Yanren [13] who conducted research on factors affecting ABC adoption, and Shield [3], Shields and McEwen [14], Gosselin [15] and Baired et al.[16, 17]who concentrated on factors influencing ABC success especially at the implementation stage. However, there is mounting evidence that suggests most of firms are experiencing problems in implementing ABC and, in some extreme cases, ABC implementation is not successful [3], which later resulted in abandoning the ABC systems altogether [15]. Questions arise as to why ABC implementation is successful in certain companies and fails in others. Based on the contingency theory, researchers...
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...Consulting Services, using the Activity-Based Costing system (ABC) and the conventional costing system based on computing hours. ABC provides more detailed and accurate information than the conventional costing system because ABC is based on consumption of resources by production of a product or service line and focuses on the activities that drive costs, recognising that activities consume resources. The conventional method allocates overhead costs based on hours consumed (in this case computing hours), which may not represent the actual consumption of indirect resources expended by the service. A costing system should provide information to help minimise waste, but should not be wasteful in it-self . The resources required to design, implement and maintain a costing system should be less than the benefit derived from the use of the system. This report is to compare the conventional costing system against an ABC System for DBS Consulting Services and will discuss the following: 1. ABC improving costing accuracy 2. Profitability of DBS Consulting Service using conventional costing procedures and ABC 3. Recommendation of the adoption of ABC based the results conventional costing and ABC 4. Aggressive expansion? 5. Factors to be taken into account when implementing ABC 6. How to encourage positive reactions. 1. ABC IMPROVING COSTING ACCURACY ABC is said to improve costing accuracy when compared with conventional costing procedures. ABC is a managerial accounting...
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...Recommendation for Implementation of Activity-based Costing Joann Harper BU264: Managerial Accounting, Spring 2011 Dr. Henry Bryan April 13, 2011 Outline I. Introduction A. Comparison of traditional costing vs. activity-based costing B. Pros and cons of activity-based costing C. 4 companies selected for review i. General Electric ii. Dennison Manufacturing Co. iii. South-western Ohio Steel Inc. iv. Insurance companies D. Thesis Statement: An examination of four companies that have successfully implemented activity-based costing/activity-based management has led to my recommendation that transitioning to activity-based costing is the right move for our company. Although there are many benefits to activity-based costing, we would directly benefit from the relative ease of implementation for a company our size, the ability to view our product costs differently and target process improvements which in turn will lead to an improved line of products and allow us to be more competitive in our market niche. II. General Electric A. A brief history of activity-based costing B. Outcome of General Electric and activity-based costing III. Dennison Manufacturing A. How Dennison Manufacturing uses activity-based costing B. Outcome of Dennison Manufacturing’s implementation of activity-based costing IV. South-western Ohio Steel...
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...Cooper was designed the activity based costing (ABC) method in 1988. It was felt that there was a need for more accurate and up-to-date information and a more proactive approach to planning and managing the costs. ABC is a process to identify the costs of all activities and allocating, applying, assigning or tracing costs to products. Activity based costing is a costing technique, tool, system, mechanism or approach. It may be used in addition to the current traditional system or used in place of it. This will enable the new system to be applied consistently so that the opportunity to revert to old ways is limited. Activity based costing is aims to cost the products independent of output volume and to apply overheads on the basis of causes and effect. Besides that, it is also aim to trace all the costs to products. The underlying assumption of ABC is that a product causes activities, activities cause costs and therefore activity is related to product costs. In other words, since activities consume assigned resources and products consume activities, the costs of products are the cost of resources. Its main focus is on the relationship between activity, cost driver, cost, cost pool and cost object. Traditional cost accounting is inadequate so that become activity based costing more relevant. Activity based costing gained support because of the limitations of traditional cost accounting. It is focuses on departments, cost centres or divisions and not an activity. For example, the production...
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...Problems and Perspectives in Management, Volume 12, Issue 4, 2014 Emmanuel K. Oseifuah (South Africa) Activity based costing (ABC) in the public sector: benefits and challenges Abstract Peter Drucker (1986), in “Management: Tasks, responsibilities, and practices” states that business enterprises and public-service institutions, are organs of society which do not exist for their own sake, but to fulfil a specific social purpose and to satisfy need of society, community, or individual. To achieve the above objectives, managers of these institutions must plan, control and make decisions about the resources entrusted to their care. A key element of efficient organizational decision making is to use reliable information, both operational and managerial accounting data for analysis and decision support. This can be achieved by using activity-based costing (ABC) method. The underlying premise of ABC is that resources are consumed by activities to produce outputs or products and services (US General Services Administration, 2006). It focuses on the allocation of indirect costs to products and services, which was traditionally done on arbitrary basis. ABC is useful in two situations: areas with large and growing indirect and support costs (Krumwiede, 1998a; Becker, Bergener and Räckers, 2010), and areas with a large variety in products, customers and processes (Cooper, 1988a, 1988b; Groot, 1999). The unique characteristic of public sector organizations as overhead-intensive...
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...strengthen their position in the global economy. The attention focuses on product quality, processes for the production, and improving workforce. However, many companies are still using the same traditional costing systems, Cooper and Kaplan (1991).The absorption costing paved way due to the lack of visibility for indirect costs so the ABC has been adopted by many organizations rapidly. According to Krajnc et al. (2011), the main difference of ABC to absorption costing lies on how they treat indirect production costs (overheads) and sales. The fundamental goal of ABC is to identify as much as possible direct relationships between products and resources consumed through activities conducted from production to disposal. The ABC system is based on the assumption that the support activities such as activities and sales, the cost of which traditional systems characterized as overheads, offer opportunities for the implementation of activities, and thus are not just for sharing costs. In an absorption costing when the volume of overheads is larger, the likelihood of distortions in reported costs is also greater. In general, overheads that exceed 15 percent of the total cost can cause inaccuracies, Turney (1996). Many companies had major problems by these inaccuracies and so they started using ABC. The traditional approach to cost allocation consists of three steps: Concentration of costs in the productive and non - productive parts. Allocation of the cost of non-productive segments in section...
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...activity based costing Activity based costing system is the costing system that it will based on the occurred of events to assign to the products and services that involved in the process of providing the product or service. So firstly, it will identify various activities performed in a firm and then, allocated the overhead costs to activities using multiple cost drives and allocate the overhead costs to products and services based on the amount of it consumed of these activities and resources. For ABC system used of multiple drive however, traditional costing system only based on one cost driver. ABC system able to take account of all the overhead costs such as selling and administrative, marketing and general expenses .The traditional costing systems focus on internal organisation management and are financially-oriented So the firms that operate under contemporary settings may not favourable to use of traditional costing systems due to increasing global competition, advance technological and development of new management system such as total quality management, just in time and flexible manufacturing system. However, ABC could work with other system such as economic value added, total quality management or theory of constraints. In addition, ABC system may able to monitoring the hidden losses and profits compare with the traditional costing system. But for identical output it may not reasonable to implement in ABC system but logical to traditional costing system. Advantage...
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...Running head: ABC Systems: Are they Advantageous ABC Systems: Are they Advantageous Jamie Parson Liberty University Abstract Activity based cost accounting provides companies with detailed and pertinent information that enables them to accurately cost the manufacturing products. Although it is at time confusing the use of an ABC system allows managers the details they need to make educated decisions about production and costs. The use of the ABC system is not always the most popular way for companies to go, but is it worth it? ABC Systems: Worth the Work? Activity Based Costing or as it is more commonly labeled “ABC” is a costing system that firsts assigns cost to activities and then assigns them to product based activities used towards that product. Costs are assigned to activities in a detailed manor so that detailed costs per activity are available. Once costs are assigned to activities they are than assigned to products based on the products use of that resource. ABC techniques allow businesses to decide which products, services, and resources are increasing their profitability, by providing more detailed information to management. The implementation of an ABC costing method it not right for all corporations; however for the corporations that fit the model for an ABC system, managers are more educated to make informed decisions about the true cost of a product. The use of this system allows more accurate and cost effective: pricing, costing, process improvements...
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...Activity Based Costing Presentation by: Viraj Vaidya (12F353) & Nikhil Vanage (12F360) SCM Introduction Activity-based costing (ABC) is a costing methodology that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each. This model assigns more indirect costs (overhead) into direct costs compared to conventional costing. CIMA (Chartered Institute of Management Accountants) defines ABC as an approach to the costing and monitoring of activities which involves tracing resource consumption and costing final outputs. Resources are assigned to activities, and activities to cost objects based on consumption estimates. The latter utilize cost drivers to attach activity costs to outputs. Aims of model With ABC, a company can soundly estimate the cost elements of entire products ACTIVITIES and services. That may help inform a company's decision to either: * Identify and eliminate those products and services that are unprofitable and lower the prices of those that are overpriced (product and service portfolio aim) * Or identify and eliminate production or service processes that are ineffective and allocate processing concepts that lead to the very same product at a better yield (process re-engineering aim). In a business organization, the ABC methodology assigns an organization's resource costs through activities to the products and services...
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...Task 1- Sky’s the Limit’s future |Changes in Business Environment |Organizational Responses |Management Responses | |Increase in global competition is changing |Sky’s the limit should have a flatter |Sky’s the limit should follow activity-based | |the business environment as trade barriers |organizational structure in order to adjust |costing system because it will result in more| |fall and manufacturing cost of balloons will |as per changing business environment. For |accurate product cost, labor cost etc. This | |decrease due to increase in product demand, |e.g. Sky’s the limit needs to establish |will also result in one rate for cost | |hence attracting new competitors entering New|separate departments for manufacturing |allocation for each manufacturing overhead | |Zealand market. |customized and standard balloons. Also in |activity. | | |order to maintain high quality of balloons, a| | | |separate quality control unit should be | | | |established within the factory. | | |Deregulation of service sectors such as |Training...
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...2010-023X Factors Influencing Activity-Based Costing Success: A Research Framework Zhang Yi Fei and Che Ruhana Isa becoming more and more popular [3-7] ABC aims to provide accurate costing information to managers to allocate activity costs to products and services by applying cost drivers [8]. Academics who advocate ABC, such as, Cooper and Kaplan [9], and Swenson [10] argue that it provides more accurate cost data needed to make appropriate strategic decisions about product mix, sourcing, pricing, process improvement, and evaluation of business process performance. These claims have led many firms to adopt ABC systems [8]. The benefits of ABC and its positive impact on firm’s performance motivated a numerous studies which examined various aspects of ABC. Among such studies are McGowan [11] who assessed the integrity of ABC success, Innes and Mitchell [4, 12] and Yanren [13] who conducted research on factors affecting ABC adoption, and Shield [3], Shields and McEwen [14], Gosselin [15] and Baired et al.[16, 17]who concentrated on factors influencing ABC success especially at the implementation stage. However, there is mounting evidence that suggests most of firms are experiencing problems in implementing ABC and, in some extreme cases, ABC implementation is not successful [3], which later resulted in abandoning the ABC systems altogether [15]. Questions arise as to why ABC implementation is successful in certain companies and fails in others. Based on the contingency theory, researchers...
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