Article summary for Tom Kennedy and John Affleck-Graves on
The Impact of Activity-Based Costing Techniques on Firms Performance
Janetha Brown
This article discusses how a management accounting system like activity-based costing (ABC) may or may not have a significant impact on a firm’s value. With the samples that are shown, it is proven that the companies that use an ABC technique outperform other companies that don’t use an ABC technique by 27% over a three year period. It also shows that using an ABC technique will add value to the firm through better cost control and asset utilization. Because it had never really been proven that an ABC process really does bring an increase in shareholder value through increased profits, it is being reviewed here. The primary purpose of this article is to see if the many documented successful case study implementations of ABC are, on average, translated into superior stuck performance. (Kennedy and Affleck-Graves, 2001, p. 20)
A sample of firms that do adopt ABC and some that don’t is gathered to do a comparison of the two. Comparing the ABC adopted firms to its counterparts for three years, it is revealed they have a 61% return for the ABC adopting firms compared to 34% return for the non-adopting firms which is a 5% difference. Other factors could play a role in the superior performance but when comparing other factors between the companies, nothing significant is found to stand out.
The next section discusses several difference cases and their reviews and outcomes. They discuss everything from profitability, relevant information for management operating decisions, cash flow projections, to value added activities that support products, customers and services. There are other arguments on if there is enough accurate information and that it cannot stand up to close scrutiny because it has not been empirically tested or