Annotated Bibliography
An Annotated Bibliography of Activity Based Costing
by
Patricia M. Privette
MBA student at The Ohio State University
and
Lt. Col. Terrance L. Pohlen, USAF, Ph.D
Terrance_Pohlen@dscc.dla.mil
9-6-95
- Ali, Hamdi F., A Multicontribution Activity-Based Income
Statement, Journal of Cost Management, F94, pp. 45-54.
-
The author outlines the development of an ABC based income statement. The
multicontribution income statement reflects the individual contribution by
product, product line, operations and facilities. The ABC based income
statement attempts to incorporate contribution margin analysis into the income
statement - making the income statement a more valuable management tool. [I]
-
Ames, B. Charles and James D. Hlavacek, Vital Truths About Managing Your
Costs, Harvard Business Review, January-February 1990, pp.
140-147.
-
The authors discuss four truisms that apply universally to all businesses: 1)
In the long run, you must be a lower cost supplier than all others providing
equivalent products or services, 2) Inflation-adjusted costs of production must
continuously decrease (the experience curve), 3) The true cost and profit
picture for each product must be known and 4) Cash flow is as important as
profit. The "cycle of decay" (when cost cutting efforts lead to competitive
decay) is typically begun when management uses financial accounting data, not
control data, for decision making. Costs are classified as bedrock fixed (very
few qualify as this), managed fixed, direct variable and shared costs. Most
costs qualify as managed, and therefore are controllable in the long run.
[I]
-
Beaujon, George J. and Vinod R. Singhal, Understanding the Activity Costs in
an Activity-Based Cost System, Journal of Cost Management, Vol. 4,
No. 1, Sp90, pp. 51-72.
-
The authors identify three elements of an ABC structure that have a natural
interpretation as activities: 1) activity centers, 2) cost drivers and 3)
resource categories. Examples based on an ABC system at General Motors are
given. Guidelines for designing ABC systems whose results can be easily and
correctly interpreted are provided. Examples of activities and cost drivers
are provided in detailed exhibits. [I]
-
Benke, Ralph L., Teaching Activity-Based Costing, Management
Accounting, Vol. 74, August 1992, pp. 61-62.
-
Recent developments in cost accounting have created a problem for accounting
educators. New techniques, such as ABC, JIT, TQM and others, must become part
of the curriculum if students are to enter the workforce with realistic skills.
Suggestions on how to incorporate ABC into the curriculum are given. [B]
-
Blaxill, Mark F. and Thomas M. Hout, The Fallacy of the Overhead Quick
Fix, Harvard Business Review, July-August 1991, pp. 93-101.
-
Overhead cost can only be controlled by examining and redesigning the processes
that contribute to overhead. Too many companies have decimated their ability
to compete by indiscriminately cutting expenses in order "to cut costs". ABC
is not mentioned in the writing, but the concepts addresses complement the
overall goal of ABC - identification of activities and their costs so that the
activities can be better managed. [I]
-
Clemens, James D., How We Changed Our Accounting System, Management
Accounting, February 1991, pp. 43-46.
-
The accounting manager for Digital Audio Disc Corporation, a maker of CDs,
discusses how the company revised its accounting system. The rapid growth of
the industry and increased competition mandated better accounting in order to
be competitive. [I]
-
Cokins, Gary, Alan Stratton and Jack Helbling, An ABC Manager's Primer,
Montvale, NJ: Institute of Management Accountants, 1993.
-
This concise, easy-to-read resource is directed towards readers who are already
aware of their own organizations' costing shortcomings. The authors also
assume that the reader has a basic understanding of ABC theory. The authors'
intent is "to take the mystique out of activity-based costing". Individual
chapters address the rise of ABC, ABC system design, activity-based management,
business process redesign, ABM benchmarking and customer profitability. [I]
-
Cooper, Robin, ABC: A Need, Not an Option, Accountancy, September
1989, pp. 86-88.
-
This writing is based on Cooper's The Rise of Activity-Based Costing -
Part One: What is an Activity-Based Cost System? article that appeared
in the Summer 1988 issue of the Journal of Cost Management. [I]
-
Cooper, Robin and Robert S. Kaplan, Activity-Based Systems: Measuring the
Cost of Resource Usage, Accounting Horizons, Vol. 6, No. 3,
September 1992, pp. 1-13.
-
ABC systems are not models of how expenses or spending vary in the short-run.
ABC systems estimate the costs of resources used to perform activities for
various outputs. ABC systems model how activity usage varies with the demands
made for these activities. Management must reduce unused capacity by either
supporting a higher volume of business or reducing spending on resources.
[I]
-
Cooper, Robin, and Robert S. Kaplan, How Cost Accounting Distorts Product
Costs, Management Accounting, April, 1988, pp. 20-27.
-
While academic accountants have preached that product decisions are short term
in nature (and therefore require variable costing), most practicing accountants
view product decisions as long term. They, therefore, examine "fixed" costs in
additional to variable costs when making product decisions. This had led to a
misclassification of some variable costs as "fixed" - because they cannot be
changed within the short time frame as defined by the academics. Existing cost
systems blur the relationship between these fixed (really variable) costs and
product activity. Allocation of these costs to products using a volume related
allocation base will only further distort product costs. [I]
-
Cooper, Robin and Robert S. Kaplan, Measure Costs Rights: Make the Right
Decisions, Harvard Business Review, September-October, 1988, pp.
96-103.
-
Virtually all of a company's activities should all be considered product costs
- especially for decision making purposes. The costs of excess capacity and
R&D (for new products and lines), however, should not be assigned to
products in an ABC system. Just because an ABC system indicates that a
particular product is unprofitable does not imply that it should immediately be
dropped from the product line. There may be other strategic reasons for
carrying an unprofitable item. [I]
-
Cooper, Robin and Robert S. Kaplan, Profit Priorities from Activity-Based
Costing, Harvard Business Review, May-June 1991, pp. 130-135.
-
ABC can help managers find the places in their organizations where improvement
is likely to have the greatest financial payoff. Fully exploiting ABC's
benefits requires a conceptual break from the traditional cost system and a
willingness to act on ABC's insights. ABC analysis also explains how and why
advanced manufacturing and design philosophies already adopted are so
profitable. [I]
-
Drury, Colin, Activity-Based Costing, Management Accounting (UK),
Vol. 67, No. 8, September 1989, pp. 60-66.
-
Drury outlines the benefits of both an ABC system itself and the extension of
ABC into ABM. These is some comparison of ABC practices in the US and the UK.
[I]
-
Dugdale, David, The Uses of Activity-Based Costing, Management
Accounting (UK), October 1990, pp. 36-38.
-
The author reviews the historical development of the ABC technique, the place
which ABC occupies in management accounting theory and the conflicts which can
arise when ABC is applied in practice. Dugdale characterizes ABC as a valuable
addition to the armory of techniques available to management. [I]
-
Fraser, Jill Andresky, Accounting: The New ABC, Inc., December
1993, p. 175.
-
This article highlights the use of ABC at Transparent Container, a small
manufacturer of plastic containers. An activity-based software program helped
the vice president of finance to realize that they "were failing to consider
all kinds of corporate expenses in our pricing model". He recommends ABC Plus
as a prepackaged software package. [B]
-
Hiromoto, Toshiro, Another Hidden Edge - Japanese Management Accounting,
Harvard Business Review, July-August 1988, pp. 22-26.
-
The management accounting systems at many Japanese manufacturing companies
reinforce a top-to-bottom coe between US and Japanese systems. [I]
-
Hirsch, Jr., Maurice L. and Michael C. Nibbelin, Incremental, Separable,
Sunk and Common Costs in Activity-Based Costing, Journal of Cost
Management, Vol. 6, No. 1, Sp92, pp. 39-47.
-
Several problem areas exist with ABC systems: 1) the handling of incremental,
separable and sunk costs, and 2) the handling of common costs. These problems
affect traditional cost systems also. Therefore, the same caution should be
used in interpreting ABC results as you would use in interpreting costs
generated by traditional systems. [I]
-
Innes, John and Falconer Mitchell, Activity Based Costing Research,
Management Accounting (UK), May 1990, pp. 28-29.
-
The authors summarize the findings of their review of the ABC literature and
preview a further study of ABC implementation at a UK-based engineering
company. [I]
-
Jeans, Mike and Michael Morrow, The Practicalities of Using Activity-Based
Costing, Management Accounting (UK), November 1989, pp. 42-44.
-
The practicalities of applying ABC are discussed. There are analyses of
several Harvard Business School cases: Siemens Electric Motor Works, Tektronix
Portable Instruments Division and John Deere Component Works. [I]
-
Johnson, H. Thomas, It's Time to Stop Overselling Activity-Based
Costing, Management Accounting, September 1992, pp. 26-35.
-
ABC is not the panacea for all ills. If flawed accounting data is used in an
ABC system, the system will simply repeat past errors. ABC is a useful tool
for some types of decisions - but not all decisions. There is a good
explanation of the development of ABC theory which highlights the problems of
ABC when applied to certain applications. This article is adapted from the
author's book, Relevance Regained: From Top-Down Control to Bottom-Up
Empowerment. [I]
-
Johnson H. Thomas and Robert S. Kaplan, Relevance Lost, Boston, MA:
McGraw-Hill, 1991.
-
The authors explore the business environments of the nineteenth and early
twentieth centuries that influenced cost system design during these periods.
Advancement in cost measurement appears to have ceased during the 1920s - while
business environments have continually changed. The influence of Taylor's
Scientific Management school on cost systems is discussed. The emergance of
vertically and horizontally integrated companies and their contribution to
early cost systems is also examined. Finally, the last portion of the book
addresses the "lost relevance" of these old systems to new business
environments. [I]
-
Jones, Lou F., Product Costing at Caterpillar, Management
Accounting, February 1991, pp. 34-42.
-
The different activities pools used at Caterpillar are discussed. These
include the logistics activity pool, the manufacturing activity pool and the
assembly activity pool. The author emphasizes that cost systems are tools - no
more, no less. It is how these costs are used that determines the value and
success of a particular system. [I]
-
Koehler, Robert W., Triple-Threat Strategy, Management
Accounting, October 1991, pp. 30-34.
-
A combination of ABC, direct costing and contribution margin approaches to
management accounting offers companies a true overview of the entire cost
picture. ABC is most useful in the planning stage of strategic decisions. ABC
does not eliminate the need for direct costing and contribution margin
analysis. [I]
-
Mathews, Ryan, ABC Made Easy, Progressive Grocer, September 1994,
pp. 37-39.
-
Ernst & Young has developed an ABC Primer for Wholesalers and
Retailers for the Food Marketing Institute. The author presents an
abbreviated version of the primer which is designed to be used in conjunction
with a program developed by the ECR Performance Measure Operating Committee:
Performance Measures: Understanding Value Chain Analysis in the Grocery
Industry. [B]
-
McConville, Daniel J., Start with ABC, Industry Week, September
6, 1993, pp. 33-36.
-
ABC and ABM are perhaps the most important concepts since the introduction of
TQM. Both complement TQM by providing quantitative data on improvements made
as a part of a TQM program. ABC systems at Amoco Performance Products,
Transparent Container Co. and Fellowes Mfg. Co. are discussed. [I]
-
Merz, C. Mike and Arlene Hardy, ABC Puts Accountants on Design Team at
HP, Management Accounting, September 1993, pp. 22-27.
-
The ABC system at Hewlett-Packard's Boise Surface Mount Center has been in
place since 1989. Since then, HP employees have improved the system by
tinkering with it continuously. The authors review how the system has evolved
over the four years it has been in place and what changes the ABC system has
caused in the way different departments function at BSMC. For example, the
engineering department now takes an active role in developing cost drivers and
the accounting department now has input into initial design decisions. [I]
-
Metzger, Lawrence M., The Power to Compete: The New Math of Precision
Management, The National Public Accountant, May 1993, pp. 14-16.
-
ABC is used to improve CVP (cost-volume-profit) analysis in multi-product
firms.
ABC improves the determination of variable costs and fixed costs for the CVP
analysis. [I]
-
Montgomery, Leland, Cost Control: Tektronix, Financial World, Vol. 161, No. 19, September 29, 1992, p. 54.
-
ABC helped management focus on product-line profitability. ABC was implemented in 1986 after a benchmarking study found that Tektronix's printed circuit board division was "the worst in the industry" in terms of processes and profitability. By pinpointing costs and profit margins, ABC also allowed Tektronix to expand beyond its captive market to outside customers. A 1990 benchmarking study found that Tektronix had become the best in the industry.
[B]
-
National Center for Manufacturing Sciences, Strategic Management Accounting
Offers American Manufacturers a Strong Global Competitive Advantage,
Focus, September 1993.
-
This issue "focuses" on strategic managerial accounting in industry. The integration of ABC systems with TQM must be a critical progression in American corporations, according to Peter B. B. Turney. Harley-Davidson's implementation of ABC and ABM in the mid 1980s (following a manufacturing restructuring in the early 1980s) is discussed. Statistics from a NCMS survey are also presented. [B]
-
Noreen, Eric, Conditions Under Which Activity-Based Cost Systems Provide Relevant Costs, Journal of Management Accounting Research, Vol. 3, Fall 1991, pp. 159-168.
-
This is a mathematically dense treatment of ABC. The author proposes to clearly identify the assumptions typically made about the nature of the links between output and activities and activities and costs. The conditions under which an ABC system will provide relevant information are derived. [A]
-
Paré, Terence P., A New Tool for Managing Costs, Fortune,
Vol. 127, No. 12, June 14, 1993, pp. 124-129.
-
ABC-generated benefits are highlighted at a variety of companies: Dana, AMD,
Chrysler, Hewlett-Packard and GE Medical Systems. [B]
-
Pattison, Diane D. and Carrie Gavan Arendt, Activity-Based Costing: It
Doesn't Work All the Time, Management Accounting, April 1994,
pp. 55-61.
-
A failed attempt at ABC is explored, and the underlying reasons for the failure
are discussed. Ultimately, the original ABC system was modified and this
system was accepted by the company. [I]
-
Piper, J. A. and P. Walley, ABC Relevance Not Found, Management
Accounting (UK), March 1991, pp. 42-54.
-
The authors respond to Robin Cooper's critique (Explicating ABC Logic in
the November 1990 issue) of their article Testing ABC Logic. The
authors remain convinced that the ABC model is logically flawed and the case
for its application is both questionable and unproven. [I]
-
Piper, J. A. and P. Walley, Testing ABC Logic, Management Accounting
(UK), September 1990, pp. 37-42.
-
The authors question the fundamental assumption on which ABC is based: that
activity causes cost. The authors critique the article, The Practicalities
of Using Activity-Based Costing, by Jeans and Morrow which was published in
the November 1989 issue of Management Accounting (UK). [I]
-
Raffish, Norm, How Much Does That Product Really Cost, Management
Accounting, Vol. 72, March 1991, pp. 36-39.
-
Finding out how much that product costs may be as easy as ABC. The author
discusses the shortcomings of traditional cost systems and proposes ABC as an
alternative. The author states that ABC is not a panacea for all the product
costing ailments or shortcomings in manufacturing. Raffish surmises that as
ABC gains acceptance, it may very well become "the" cost system in place of
traditional systems. [I]
-
Ruhl, Jack M., Activity-Based Variance Analysis, Journal of Cost
Management, Vol. 8, No. 4, W95, pp. 38-47.
-
Traditional variance analysis is a product of traditional cost systems.
Variance analysis has a place in ABC systems. Capacity variances based on a
hierarchy of cost levels can help managers increase productivity and reduce
costs. The calculation of these variances is examined. [I]
-
Ruhl, Jack M., and Trina A. Bailey, Activity-Based Costing for the Total
Business, CPA Journal, February 1994, pp. 34-38.
-
The authors provide an example of ABC to illustrate how ABC can serve as a
management tool with each of three cost areas: upstream (product design,
materials sourcing, product emphasis), manufacturing, and downstream (marketing
and distribution). [I]
-
Schiff, Jonathan B., ABC at Lederle: A Cost Management Group Feature,
Management Accounting, August 1993, p. 58.
-
The author interviews William A. Harrel, manager of business analysis for
Lederle Laboratories Manufacturing in Pearl River, NY about the company's
effort to implement a site-wide ABC management system. Schiff inquires about
the initial focus of the project, implementation, the wins and disappointments
of the project and the expectations and biases about the pilot project. This
is an excerpt from an article which appeared in Cost Management Update,
an IMA focus newsletter. [B]
-
Schwan, Edward S., Activity-Based Costing: Something Old, Something New,
Mid-Atlantic Journal of Business, December 1994, pp. 295-298.
-
The "something old" refers to the search for appropriate cost drivers.
Management accountants have always preferred to use appropriate cost drivers
when allocating overhead. It is only the recent developments in manufacturing
that have rendered previously acceptable drivers obsolete. The "something new"
refers to the inclusion of non-factory costs into product costing. All
activities consumed by the product, whether manufacturing, marketing or
distribution, are included in the product cost under ABC. [B]
-
Shank, John K. and Vijay Govindarajan, Chapter 11: Product Line Complexity
as a Cost Driver - Activity-Based Costing, Strategic Cost
Management, New York: Free Press, 1993, pp. 167-185.
-
The authors demonstrate how traditional cost systems and ABC systems yield
dramatically different product costs in a multi-product environment. The
limitations of ABC when used as an ongoing cost system are discussed. The
authors argue that the likelihood of achieving strategic benefits from ABC is
inversely proportional to the extent that ABC is incorporated into the
company's accounting system because incorporation into "the books" reduces the
probability that the insights provided by ABC will be acted upon. [I]
-
Shank, John K. and Vijay Govindarajan, Chapter 12: Using and Abusing the ABC
Concept, Strategic Cost Management, New York: Free Press, 1993, pp.
186-202.
-
Two published case studies concerning Electric Motor Works of Siemens AG are
analyzed. The authors conclude that the useful insights that emerge from the
ABC analysis go largely unused because of Siemens' view of ABC as an
alternative cost system and not as a strategic tool. [I]
-
Smith, Malcolm, Managing your ABC System: Activity-Based Costing,
Management
Accounting, April 1994, pp. 46-47.
-
ABC is a management tool that can expose information that previously was
hidden. There have been no conclusive studies to suggest that ABC generates
bottom-line improvements in profitability. ABC is a means to an end, not an
end in itself. [I]
-
Stratton, W. O., ABC: An All-Purpose Solution for Financial Reporting,
Management Accounting, May 1993, pp. 44-49.
-
The author proposes replacing existing traditional cost systems with ABC
systems because ABC generated costs comply with GAAP. In addition, using only
one system eliminates conflict that occur when ABC systems suggest a strategy
contrary to the "official system". [I]
-
Turney, Peter B. B., Common Cents: The ABC Performance Breakthrough,
Portland, OR: Cost Technology, 1993.
-
If you want to look at only one resource for ABC, this is the one. Turney
begins with why you need to change your cost system, moves to why ABC is the
solution and moves through the steps necessary to design an effective ABC
system. An accounting background is not necessary to understand the material
as Turney presents it. [I]
-
Turney, Peter B. B., How Activity-Based Costing Helps Reduce Cost,
Journal of Cost Management, Vol. 4, No. 4, W91, pp. 29-35.
-
The author explains how ABC can be used to simulate the effects of continuous
improvement on costs. Four ways in which continuous improvement can affect
cost are identified: 1) activity reduction, 2) activity elimination, 3)
activity selection and 4) activity sharing. The advantages of ABC over
traditional cost systems in reporting product cost and information are
demonstrated. [I]
-
Wizdo, Al, Activity-Based Costing: A Methodology for Costing and
Profitability, Industrial Management, September 1993, p. 17.
-
Changes in the manufacturing environment (from labor intensive to fully
automated) have necessitated a new approach to product costing. ABC requires
information sharing across a range of business functions. ABC provides
relevant information for strategic decisions concerning products, services and
prices. [B]
-
Yakhou, Mehenna and Boubekeur Rahali, Integration of Business Functions:
Activity and Life-Cycle Accounting, APICS - The Performance
Advantage, January 1993, pp. 36-37.
-
Activity accounting points management attention to functional interdependencies
in order to reduce costs and increase quality, productivity and flexibility. [B]
-
Awasthi, Vidya N., ABCs of Activity-Based Costing, Industrial
Management, July 1994, pp. 8-11.
-
This is a good introduction to the practical use of ABC. Although it is
written by an accountant, non-accountants will find it easy to understand.
Awasthi explains how costs can be better managed by value-added analysis -
identifying those activities that do not add value and either eliminating or
reducing these activities through process redesign. He emphasizes the
trade-off associated with improved costing systems: the increased cost. [I]
-
Baker, William M., Understanding Activity-Based Costing, Industrial
Management, March 1994, pp. 28-30.
-
An example of a company manufacturing and selling two grades of the same
product is given. The author stresses that ABC does not find the "true cost"
of the product. There is no true cost figure. What ABC does do is allocate
indirect costs in a more equitable manner among dissimilar products. ABC is
often accepted by top management who are, at the same time, reluctant to
implement new production methods. The existing cost accounting system is a
product of a by-gone era. [I]
-
Barnes, Frank C., IEs Can Improve Management Decisions Using Activity-Based
Costing, Industrial Engineering, September 1991, pp. 44-50.
-
The author provides a general explanation of ABC, why it is needed and what is
involved in implementing an ABC system. Several examples of cost drivers for
specific cost centers are given in an illustration. Brief highlights of
various ABC implementations (Siemans Electric Motor Works, John Deere,
Tektronix, Northern Telecom, Hewlett-Packard) are presented. [B]
-
Bruns, William J., Activity Accounting - Another Way to Measure Costs,
Harvard Business School, 9-193-044, Rev. April 26, 1993.
-
The objective of this teaching note is to introduce the fundamental concepts of
ABC. Two HBS cases are recommended for studying the basic techniques used in
ABC systems. Bruns characterizes ABC as one of the most exciting events in the
development of cost accounting during this century. [B]
-
Compton, Ted R., Using Activity-Based Costing in Your Organization - Part
1, Journal of Systems Management, March 1994, pp. 32-40.
-
The author describes the major steps for implementing an ABC system. Factors
to consider when planning an ABC system are also discussed. Suggestions for
"selling" the ABC idea to the organization are given. This is a good
introduction to ABC for non-accountants. [I]
-
Cooper, Robin, The Rise of Activity-Based Costing - Part One: What Is an
Activity-Based Cost System?, Journal of Cost Management, Vol. 2, No.
2, Sm88, pp. 45-54.
-
The author analyzes the distorted product costs that a traditional volume-based
cost system produces when multiple, dissimilar products are produced. Diversity
in production volume, product size, production complexity, material usage and
machine setup all lead to misstated costs if only one volume-based allocation
base is used to allocate costs among the various products. [A]
-
Hardy, John W. and E. Dee Hubbard, ABC Revisiting the Basics, CMA
Magazine, November 1992, pp. 24-28.
-
The traditional cost system is compared to an ABC system. Advantages and
disadvantages of each method are presented. [B-I]
-
Sharman, Paul A., Activity-Based Costing: A Practitioner's Update,
CMA Magazine, July/August 1991, pp. 22-25.
-
The most significant change in ABC is the way in which ABC information is being
used. This is a general introduction to ABC. [B]
-
Vasilash, Gary S., A Brief Look at Activity-Based Costing,
Production, May 1994, pp. 54-56.
-
The author presents a non-technical introduction to ABC and ABM. The
behavioral aspects of change are stressed because of the perceived threats that
ABC implementation presents to some people in the organization. Vasilash
recommends that a middle manager in operations be the ABC team leader because
this person has some influence with "the people in the offices" as well as some
knowledge of what's happening "on the floor". [B]
-
Aiyathurai, Gerald, W. W. Cooper and K. K. Sinha, Note on Activity
Accounting, Accounting Horizons, December 1991, pp. 60-67.
-
The authors compare today's ABC theory with an earlier attempt at "activity
accounting" employed at the Tennessee Valley Authority in the 1940s. This
system was implemented after the controller concluded that the existing cost
system was inappropriate for TVA's specialized operations. The authors then
highlight some of the issues that modern activity-based systems must not
neglect. [I]
-
Dugdale, David, Costing Systems in Transition: A Review of Recent
Developments, Management Accounting (UK), January 1990, pp. 38-41.
-
The author reviews the developments in costing systems through 1990. The
concept of "different costs for different purposes" is emphasized throughout
the article. The author also surmises that many of the difficulties
encountered in costing systems are educational and social in nature. [I]
-
Kaplan, Robert S., In Defense of Activity-Based Cost Management,
Management Accounting, November 1992, pp. 58-63.
-
The author discusses the developments in activity-based cost management and
attempts to explain why so much controversy has developed about ABC. The
article is structured as a "dialogue" between a colleague who poses questions
and Kaplan who answers and expands on the questions. The wide ranging uses of
ABC and the potential impact that ABC can have on operations and decision
making are discussed. [I]
-
King, Alfred M., The Current Status of Activity-Based Costing: An Interview
with Robin Cooper and Robert S. Kaplan, Management Accounting,
September 1991, pp. 22-26.
-
Cooper and Kaplan review the background of ABC, some of its effects on
business, ways in which ABC's focus has changed and ABC's future prospects.
[I]
-
Mecimore, Charles D. and Alice T. Bell, Are We Ready for Fourth-Generation
ABC? Management Accounting, January 1995, pp. 22-26.
-
This article tracks the evolution of ABC from its birth as a revolutionary
product costing system to its current state (third generation ABC). First
generation ABC focuses on product costing. Second generation ABC extends the
concept to processes and performance evaluation. Third generation ABC focuses
on the business unit and the value the unit can add to the product. The fourth
generation is a more macro approach to ABC - applying ABC to the relationship
between separate units in the chain. The authors provide several informative
examples for the various generations which illustrate real and fictional
applications of ABC techniques. [I]
-
Troxel, Richard B. and Milan G. Weber, Jr., The Evolution of Activity-Based
Costing, Journal of Cost Management, Vol. 4, No. 1, Sp90, pp.
14-22.
-
The authors classify the evolution of ABC into three phases: 1) Phase I - more
complex and sophisticated versions of traditional cost accounting systems , 2)
Phase II - ad hoc, individualized systems developed as alternatives to
traditional cost accounting systems, and 3) Phase III - development of ABC
systems as strategic decision making tools, not replacements for existing cost
accounting systems. The authors contemplate that the next phase of will
consist of ABC integration with performance measurement. [I]
-
Cooper, Robin, ABC: The Right Approach for You?, Accountancy,
January 1991, pp. 70-72.
-
Cooper discusses three factors that should be considered to determine whether
the benefits of an ABC system will exceed its implementation and operating
costs: 1) the sophistication of the company's existing information systems, 2)
the cost of errors and 3) the diversity of the company's products. This
writing is based on Cooper's The Rise of Activity-Based Costing series
that appeared in the Su88 to Sp89 issues of the Journal of Cost
Management. [I]
-
Cooper, Robin, The Rise of Activity-Based Costing - Part Two: When Do I Need
an Activity-Based Cost System?, Journal of Cost Management, Vol. 2,
No. 3, F88, pp. 41-48.
-
The author states that it is impossible to generate a set of simple decision
rules to answer the question "Do I need an ABCS?". It is possible to define
the conditions under which an ABC system is likely to be justified. If the
existing cost system was designed when 1) measurement costs were high, 2)
competition was weak and 3) product diversity was low, and current conditions
include 1) low measurement costs, 2) fierce competition and 3) high product
diversity, it is probable that a new cost system will provide benefits that
exceed its cost. The cost of errors includes making poor decisions because of
misstated product costs. [A]
-
Cooper, Robin, You Need a New Cost System When..., Harvard Business
Review, January-February, 1989, pp. 77-82.
-
You need a new cost system when....your system indicates that a hard-to-make
product produces large profits, operational managers want to drop "profitable"
products, functional managers have their own cost systems, etc. Your present
system may be obsolete if your operations have changed (increased automation, a
move to or from low volume production, introduction of JIT, etc.). Cooper
stresses that the mere presence of some symptoms doesn't automatically mean
that the cost accounting system is obsolete. The symptoms could be caused by
external factors, but their presence bears investigation. [I]
-
Eiler, Robert G., Walter K. Goletz, and Daniel P. Keegan, Is Your Cost
Accounting Up to Date, Harvard Business Review, July-August, 1982,
pp. 133-139.
-
The authors present a list of symptoms that an aging cost system may exhibit.
These are categorized into those that are visible to top management (problems
determining a product's profit margin), those that are less visible but easily
detected (great relief when a physical inventory does not result in inventory
adjustments) and those that are visible only through detailed analysis (poor
analysis of variances). The article does not specifically address ABC because
it pre-dates most of the ABC literature. However, it provides a good
explanation of the cost accounting problems that ABC attempts to correct.
[I]
-
Estrin, T. L., Jeffrey Kantor and David Albers, Is ABC Suitable for Your
Company, Management Accounting, April 1994, pp. 40-45.
-
The authors present a wide ranging list of mediating factors which determine
the extent to which ABC could give substantial improvements over existing
traditional costing systems. The ten broad factors addressed include: 1)
product diversity, 2) support diversity, 3) common process, 4) period cost
allocation 5) rate of growth in period costs, 6) pricing freedom, 7) period
expense ratio, 8) strategic considerations, 9) cost reduction and 10) analysis
frequency. The factors are weighted and the resulting factor indicates the
level of need for an improved ABC system. [I]
-
Grady, Michael W., Is Your Cost Management System Meeting Your Needs,
Journal of
Cost Management, Vol. 2, No., 2, Sm88, pp. 11-15.
-
Traditional cost accounting systems were developed to value inventory and close
the financial books each month. These two objectives are no longer the most
important objectives of a modern cost system. What should the objectives be?
Eight objectives are identified: accurate product costing, pricing and cost
estimation, operations performance management, profitability measurement, cost
reduction management, management of automation, reporting of problem areas and
integration with inventory and manufacturing control systems. [I]
-
Kaplan, Robert S., One Cost System Isn't Enough, Harvard Business
Journal, January-February, 1988, pp. 61-66.
-
Kaplan argues that one cost accounting system is insufficient for the greatly
varying needs of cost information. He identifies three different functions of
cost accounting systems: 1) inventory valuation for financial and tax purposes,
2) control of operational processes and 3) individual product cost measurement
for strategic decision making. The three functions require different levels of
accuracy and timeliness. In addition, the time frame of each determines
whether costs are treated as all variable (long term) or a combination of fixed
and variable (short term). ABC methodology is not specifically addressed, but
the themes are consistent with those behind ABC. [I]
-
Weisman, Dennis L., How Cost Allocation Systems Can Lead Managers
Astray, Journal of Cost Management, Vol. 5, No. 1, Sp91, pp. 4-10.
-
Business decisions can be no better than the information on which they are
based. Traditional cost systems are incapable of providing managers with the
information they need to make good business decisions because they fail to
distinguish between unavoidable "sunk" costs and avoidable costs. [I]
-
Cooper, Robin, Five Steps to ABC System Design, Accountancy,
November 1990, pp. 78-81.
-
Cooper provides five design steps that must be addressed in order to provide
the most benefit possible at the lowest overall cost. The complexity of the
design will depend on management's objectives for the ABC system and the
diversity of the company's product mix. This article is based on Cooper's four
part series The Rise of Activity-Based Costing in the Journal of Cost
Management (Su88 to Sp89). [I]
-
Cooper, Robin, The Rise of Activity-Based Costing - Part Four: What Do
Activity-Based Cost Systems Look Like?, Journal of Cost Management,
Vol. 3, No. 1, Sp89, pp. 38-49.
-
System design, from very simple to very complex, is examined. The complexity
of ABC systems reflects the objectives that management has for the system. The
diversity of the products/services also contributes to system complexity. Five
existing systems (at Tektronix Portable Instruments, Siemens Electric Motor
Works, John Deere Components Works, Hewlett-Packard's RND, and Schrader
Bellows) are discussed. Each one supplements the volume based cost drivers
(held over from the old cost system) with new non-volume related drivers.
Although each of the systems examined is in a manufacturing environment, the
concepts about system design are relevant to any ABC system. [A]
-
Cooper, Robin and Robert S. Kaplan, The Design of Cost Management
Systems, Englewood Cliffs, NJ: Prentice Hall, 1991.
-
Each chapter contains cases and readings (reproduced in their entirety) to
supplement the text. Many of the readings are the major articles that have
been written about ABC over the years. Although designed as a textbook, this
resource is easily read outside of a formal classroom environment. [I-A]
-
Howard, Patrick, Architecture for an Activity-Based Costing System,
Journal of Cost Management, Vol. 8, No. 4, W95, pp. 14-21.
-
System architecture for ABC systems is explored. The architecture influences
the way ABC data is manipulated - from the data entry stage to the user
interpretation stage. An ABC system must be effectively structured in order to
provide timely data - data that users will use. The article explains four
guidelines to consider in developing the architecture for an ABC system. [I]
-
Kaplan, Robert S., The Four-Stage Model of Cost Systems Design,
Management Accounting, February 1990, pp. 22-26.
-
The author responds to critics of his article One Cost System Isn't
Enough. Many readers responded by saying that it would be unfeasible to
use separate cost systems for different purposes. Kaplan modifies his argument
by presenting a four-stage model of cost systems. Ideally, modifications to
the cost system will ultimately be incorporated into a multi-purpose system.
However, until then, separate cost systems must be allowed to develop as
prototypes of an integrated system. [I]
-
MacArthur, John B., Activity-Based Costing: How Many Cost Drivers Do You
Want?, Journal of Cost Management, Vol. 6, No. 3, F92, pp. 37-41.
-
A decentralized approach to designing ABC systems is advocated by the author.
He characterizes the question "What ABC system do you want" as a bottom-up,
participatory approach to system design. In contrast, the question "What ABC
system do you need?" is characterized as a top-down, autocratic approach to
system development. The decentralized approach is the one Deere & Co. and
Fisher Controls took in expanding ABC to their various locations. Divisions
were free to adopt either a modified version of the corporate model or a
self-designed system. [I]
-
Reeve, James M., The Impact of Continuous Improvement on the Design of
Activity-Based Cost Systems, Journal of Cost Management, Vol. 4, No.
2, Sm90, pp. 43-50.
-
The author discusses how continuous improvement programs and ABC systems
interrelate and complement each other. Continuous improvement programs reduce
the scope for improving product costs because improvements typically decrease
the amount of overhead that must be distributed to products. As improvements
are made, the ABC system should be redesigned by the use of different cost
drivers. [I]
-
Turney, Peter B. B., What an Activity-Based Cost Model Looks Like,
Journal of Cost Management, Vol. 5, No. 4, W92, pp. 54-60.
-
The ABC model contains a costing dimension and a process dimension. The cost
dimension contains cost information about resources, activities and products.
The process dimension contains performance information about why and how well
work is performed in the organization. The process dimension uses financial
and non-financial information to form a complete look at the company's
operations. It is with the process dimension that the future of ABC and ABM
lie. [I]
-
Christensen, Linda F. and Douglas Sharp, How ABC Can Add Value to Decision
Making, Management Accounting, May 1993, pp. 38-42.
-
The authors recommend two modifications to the ABC model. These modifications
will enhance the model's ability to produce relevant information for short-term
decision-making as well as long-term strategic planning. [I]
-
Sharp, Douglas and Linda F. Christensen, A New View of Activity-Based
Costing, Management Accounting, Vol. 73, September 1991, pp.
32-34.
-
ABC should incorporate the concept of attributable cost (any cost that could be
eliminated if a particular activity were discontinued) for more effective
managerial decision making. Current ABC models track the full cost of a
particular activity. In doing so, they ignore the fact that not all resources
consumed by an activity are avoidable if that activity is discontinued. [I]
-
Walker, Mike, ABC Using Product Attributes, Management Accounting
(UK), October 1991, pp. 34-35.
-
The author proposes extending the ABC concept to include product attributes
(qualities of the product such as weight and size). Purdue Chicken, both
before and after Frank Purdue began running the business, is given as an
example. [I]
-
Woods, Michael D., Completing the Picture: Economic Choices with ABC,
Management Accounting, Vol. 74, December 1992, pp. 53-57.
-
The author suggests refining the basic ABC model by keeping fixed and variable
costs separate. Mixing the two types of costs can lead to suboptimal
decisions. Separating fixed and variable costs isolates the relevant
(marginal) costs that are vital for managerial decision making. [I]
-
Yang, Gilbert Y. and Robert C. Wu, Strategic Costing and ABC,
Management Accounting, May 1993, pp. 33-37.
-
The authors identify and discuss four costing methods: 1) traditional costing,
2) simple ABC, 3) capacity ABC and 4) strategic ABC. Capacity ABC refers to an
ABC model with capacity utilization incorporated. Strategic ABC refers to a
variation of capacity ABC (using the desired capacity utilization over a set
time). The strategic ABC model enables the user to calculate a close
approximation of true long-term costs and to plot its strategic advantages in
the marketplace. [I]
-
Babad, Yair M. and Bala V. Balachandran, Cost Driver Optimization in
Activity-Based Costing, Accounting Review, July 1993, pp. 563-575.
-
The authors present an optimization model for use in selecting cost drivers for
an ABC system. The model balances savings in information processing costs
against a loss of accuracy. The authors show how to determine the number of
drivers needed and how to identify the representative cost drivers. [A]
-
Cooper, Robin, The Rise of Activity-Based Costing - Part Three: How Many
Cost Drivers Do You Need and How Do You Select Them?, Journal of Cost
Management, Vol. 2, No. 4, W89, pp. 34-46.
-
The author explores how many and what types of cost drivers should be used in
an ABC system. The number of drivers desired is affected by product diversity,
volume diversity and the relative costs of activities in total. The particular
drivers used are affected by the cost of measurement (ease of obtaining data
for that driver), the correlation between consumption as implied by that driver
and actual consumption, and the behavioral effects of using that driver. The
level of desired accuracy will determine the measurement cost. The advantage
of ABC over traditional cost systems is the use of multiple non-volume related
allocation bases, but there is a limit to the cost effectiveness of multiple
drivers. [A]
-
Dopuch, Nicholas, A Perspective on Cost Drivers, Accounting
Review, July 1993, pp. 615-620.
-
The authors argue that too many of the ABC studies seem to be focused on merely
providing "better" cost information to managers. This "better" information is
assumed to follow automatically from the premise that a selection of additional
cost drivers and overhead cost pools will move the researchers closer to the
"true" cost numbers. The author suggests that this is not the kind of
perspective that should guide serious research in the area. [I]
-
Novin, Adel M., Applying Overhead: How to Find the Right Bases and
Rates, Management Accounting, March 1992, pp. 40-43.
-
Regression analysis is recommended to ascertain the relationship between costs
and cost drivers. The strength of the relationship will determine whether the
cost driver is appropriate for the costs being considered. [I]
-
Roth, Harold P. and A. Faye Borthick, Are You Distorting Costs by Violating
ABC Assumptions, Management Accounting, Vol. 73, November 1991, pp.
39-42.
-
ABC systems will provide no more accurate costs if certain assumptions are
violated. The costs in each pool must be driven by homogeneous activities and
the costs in each pool must be strictly proportional to the activity. Picking
the right cost drivers is crucial to an ABC system. Regression analysis will
determine the degree of correlation between activities and drivers. [I]
-
Sharman, Paul, Activity and Driver Analysis to Implement ABC, CMA
Magazine, July 1994, pp. 13-16.
-
This resource builds on a nine-step implementation framework discussed in the
March, 1993 issue of CMA magazine. Step 4, activity and driver analysis, is
highlighted in this article. Activity analysis begins with an extensive
interviewing process. The author identifies key questions that must be
answered. Once the key activities are identified, these are compiled into a
process flow diagram. Again, the author cautions the reader on the potential
shortcomings of the process flow diagram. This is a good "nuts and bolts"
resource for the planning stage of ABC implementation. [I]
-
Colley, J. Ron, Mark A. Segal, and Ara G. Volkan, The ABCs of Allocating
Inventory Cost, The National Public Accountant, July 1990, pp.
26-29.
-
The costs assigned to products in an ABC system are similar to the costs that
must be capitalized under the IRS inventory capitalization (UNICAP) rules. The
similarities between the two systems make it desirable to consider the
feasibility of implementing a dual-purpose ABC/UNICAP system. If the initial
design is undertaken with the UNICAP rules in mind, the ABC system will serve
both purposes at little additional cost. [I]
-
Roth, Harold P. and A. Faye Borthick, Getting Closer to Real Product
Costs, Management Accounting, May 1989, pp. 28-33.
-
The authors recommend an off-line, spreadsheet based ABC system as a supplement
to the formal accounting system. Companies do not have to commit their entire
accounting system to ABC to use ABC. [I]
-
Thilmony, Hal, Product Costing: One Set of Books or Two?, Journal of
Cost Management, Vol. 6, No. 4, W93, pp. 37-44.
-
Are two product costing systems necessary? How does a company manage the
conflicts that invariably will occur when the two systems report different
product costs and suggest two different courses of action? The author proposes
that one well designed system can meet both decision making and external
reporting needs. The flexibility to modify (i.e. adjust, aggregate or
decompose as necessary) the ABC generated costs for different users must be
built into the system at the design stage. ABC based systems can be used to
value inventory and calculate variances. [A]
-
Vercio, Alan, What Organization Are You Accounting For?, Management
Accounting, December 1993, pp. 39-42.
-
Business dysfunction can result when the accounting method used is not
appropriate. Three different organizational structures exist within a large
company: 1) the product organization, 2) the functional organization and 3) the
business process organization. Generally accepted accounting principles (GAAP)
serve the functional organization. The other two organizations need an
accounting method that matches activities with products: ABC. [I]
-
Brausch, John M., Selling ABC, Management Accounting, February
1992, pp. 42-46.
-
New cost systems can flounder if they're not marketed. Selling top management
on the need for a new cost system is an arduous task - especially if they're
more at home with the ledger than with marketing strategies. Selling top
management on a new system involves three considerable hurdles: 1) admitting
that the current system is inadequate, 2) proving that a new system will do
better than the old system and 3) justifying the sometimes tremendous
implementation costs. Two ABC implementations, one successful and the other
not, are compared. Reasons why one was successful and the other was not are
discussed. [I]
-
Brinker, Barry J (editor), Chapter B2: Implementing Activity-Based
Costing, Handbook of Cost Management, Boston, MA: Warren, Gorham,
and Lamont, 1992, pp. B2-2 - B2-32.
-
The authors set forth "a plan" for implementing ABC. This is a first rate
source of information about the objectives and considerations that must be
addressed in an implementation. [I]
-
Cooper, Robin, Implementing an Activity-Based Cost System, Journal of
Cost Management, Vol. 4, No. 1, Sp90, pp. 33-42.
-
A structured approach to ABC implementation is analyzed. What design questions
must be addressed before implementation? Cooper identifies at least six major
decisions: 1) stand alone or integrated system, 2) simple or complex design, 3)
level of precision desired 4) historical or future orientation, 5) "ownership"
of final system and 6) whether a formal design plan should be used. These
decisions will affect the time and cost of the ABC implementation. The steps
used in successful implementations are also identified and discussed. These
include ABC education, design meetings, data gathering, progress meetings and
results meetings. [A]
-
Cooper, Robin, A Structured Approach to Implementing ABC,
Accountancy, Vol. 107, June 1991, pp. 78-80.
-
This writing is based on Cooper's Implementing an Activity-Based Cost
System article that appeared in the Spring 1990 issue of the Journal of
Cost Management. Cooper presents, in a nutshell, the design questions that
must be answered up front and the steps that ensure a successful
implementation. [I]
-
Cooper, Robin, Robert S. Kaplan, Lawrence S. Maisel, Eileen Morrissey and
Ronald M. Oehm, Implementing Activity-Based Cost Management: Moving from
Analysis to Action, Montvale, NJ: Institute of Management Accountants,
1992.
-
This is a one-stop resource for implementation information. Chapters are
devoted to ABC implementations at Advanced Micro Devices, Farrall, Inc.,
Williams Brothers Metals, ARCO Alaska, Monarch Mirror Door Company, Steward
& Company, Slade Manufacturing, Inc. and Kraft USA. One chapter addresses
organizational barriers to ABC implementation and another addresses research
methodology. An appendix contains fundamental implementation steps. [I-A]
-
Greene, Alice H. and Peter Flentov, Managing Performance: Maximizing the
Benefit of Activity-Based Costing, Journal of Cost Management, Vol.
4, No. 2, Sm90, pp. 51-59.
-
An effective set of performance measurements evaluates the activities that a
business must perform well. Traditional financially oriented measurements do
not measure the critical activities of the company. Significant performance
improvements can be realized through ABC and ABM implementation - but new
performance measurements must be determined and the old measurements must be
abandoned. [I]
-
Institute of Management Accountants, Practices and Techniques: Implementing
Activity-Based Costing, Statements of Management Accounting, Statement No.
4T, September 30, 1993.
-
This publication provides an overview of the process of designing and
implementing an ABC system. Although written specifically for management
accountants, non-accountants will find the information easy to understand.
[I]
-
Kleinsorge, Ilene K. and Ray D. Tanner, Activity-Based Costing: Eight
Questions to Answer Before You Implement, Journal of Cost
Management, Vol. 5, No. 3, F91, pp. 84-88.
-
The authors present eight questions to companies contemplating ABC
implementation. Most of these are behavioral in nature (is top management
outwardly committed to ABC?, do performance measures help you manage the
"forest" or the "trees"?, is the firm ready for a change?, etc.). The authors
emphasize that the primary issues in ABC implementation are management
issues, not costing issues. [I]
-
Miller, John A., The Best Way to Implement an Activity-Based Cost Management
System, Corporate Controller, Vol. 3, No. 1, September/October 1990,
pp. 8-13, 32.
-
ABC implementation is examined from the controller's point of view. Eight
general steps are identified for implementation. The author recommends a three
to six person implementation team and time frame of four to six months for
implementation (regardless of the size of the business). The author also plots
an implementation schedule. Behavioral issues are also discussed. [I]
-
Miller, John A., Designing and Implementing a New Cost Management
System, Journal of Cost Management, Vol. 5, No. 4, W92, pp. 41-53.
-
The author discusses how to plan, design and implement a new cost management
system. Two goals for new cost management systems are as follows: 1) the
gathering of financial and operating information that reflect the performance
of activities and 2) supplying management with relevant information for
planning, managing, controlling and directing business activities to improve
processes and products, reduce waste and execute strategies. [I]
-
Morrow, Michael and Tim Connelly, Practical Problems of Implementing
ABC, Accountancy, January 1994, pp. 76-80.
-
The lessons learned from others' mistakes (failed ABC implementations) are the
subject of the authors' attention. The practical problems associated with ABC
implementation fall into five categories: 1) behavioral, 2) project focus, 3)
commitment, 4) data availability and 5) consistency of approach. As an
example, the authors caution against using outside consultants (in lieu of
committing company hours) for the activity analysis and data gathering because
the company itself must "own" the project. Lack of "ownership" becomes a
commitment problem. [I]
-
Norkiewicz, Angela, Nine Steps to Implementing ABC, Management
Accounting, April 1994, pp. 28-33.
-
ABC implementation at Pennsylvania Blue Shield is examined. The corporate
culture at Pennsylvania Blue Shield ("slow to move or change") presented an
obstacle to change. Management found it difficult to accept the new ABC
information as valid, even though it was more relevant than the old
information. Based on PBS's experience, the author outlines nine steps for a
successful ABC implementation. [I]
-
Turney, Peter B. B., Ten Myths About Implementing an Activity-Based Cost
System, Journal of Cost Management, Vol. 4, No. 1, Sp90, pp.
24-32.
-
Ten myths concerning ABC are identified, explored and refuted. Most of the
basic ideas are true - but only under certain limited conditions. When applied
to ABC systems at large, they become myths. The myths fall into four thematic
categories: 1) ABC systems are too difficult to use, 2) Improving our existing
system will provide the same benefits, 3) Our product costs are accurate enough
for our needs and 4) Cost systems are of limited benefit. [I]
-
Berlant, Debbie, Reese Browning and George Foster, How Hewlett-Packard Gets
Numbers It Can Trust, Harvard Business Review, January-February
1990, pp. 178-183.
-
The accounting department at H-P's RND division redesigned its cost accounting
system to make it more responsive to the needs of its users (accounting,
marketing, manufacturing, and design). They contemplated designing separate
cost systems for each function but chose to design one system instead. The
production manager had been keeping his own cost system on a PC - and this
system allocated costs according to production complexity. This became the
nucleus of the new system. The accountants stress that they are continually
modifying the system to improve the relevance of process (and product) costing.
[I]
-
Chaffman, Beth M. and John Talbott, Activity-Based Costing in a Service
Organization, CMA Magazine, December/January 1991, pp. 15-18.
-
ABC is applied to a service organization (E & A Services Company) that
historically allocated on a direct labor dollar basis all costs not directly
chargeable to a project. Because costs for different offices were not
segregated, there existed the potential for one office to subsidize another
office's costs. Previous cost containment efforts led to the use of cheaper,
lower quality labor which impaired the company's level of service. The authors
advocate the use of ABC within the variable contribution margin approach. The
use of absorption costing complicates the ABC allocation process. [I]
-
Drumheller, Jr., Harold K., Making Activity-Based Costing Practical,
Journal of Cost Management, Vol. 7, No. 2, Sm93, pp. 21-27.
-
The controller of a small manufacturing company (Tycos) describes how ABC was
implemented at the company. Simplicity was required for the managers to accept
the system's output. In addition, as many assumptions as possible were removed
in order to increase the relevance of the information. The original goal was
merely to produce relevant information - it was not incorporated into the
reporting system and inventory was not valued using ABC costs. After
implementation, management began using ABC in many more facets of operation
such as capital budgeting, target costing and process costing. This is a
valuable look at theory turned into practice. [I]
-
Eiler, Robert G., and John P. Campi, Implementing Activity-Based Costing at
a Process Company, Journal of Cost Management, Vol. 4, No. 1,
Sp90, pp. 43-50.
-
This article outlines the steps that Chemical One took in its implementation of
an ABC system. It begins with a preliminary diagnosis (why we don't feel like
our current system is adequate for decision making) and continues to the
business profile obtained through activity analysis. Conceptual cost flows are
developed through cost driver analysis, and value-added and non-value-added
activities are identified. There are several easily understandable graphics
used to illustrate the process. [A]
-
MacArthur, John B., Zero-Base Activity-Based Costing, Journal of Cost
Management, Vol. 6, No. 4, W93, pp. 45-49.
-
A small manufacturer implemented a PC-based ABC system as its first cost
system. Prior to this, the company had relied on ad-hoc, seat of the pants
cost information. Prices were determined by external market forces. The
company, Bertch Cabinet Mfg., Inc., had grown rapidly from a single product
firm to a multiproduct firm. Two divisions were selected as pilot studies.
The objectives of the ABC system were to identify non-value-added activities
and to provide relevant information for long-term profitability analysis of
products. [I]
-
Mangan, Thomas N., Integrating an Activity-Based Cost System, Journal
of Cost Management, Vol. 8, No. 4, W95, pp. 5-13.
-
Mangan presents an example of a real-life implementation of an ABC system at
Harris Semiconductor Sector (Harris Corporation). This ABC system was fully
integrated into the company's operations as an official system, not as a
separate, off-line management tool. Although the article documents the
implementation in a manufacturing environment, the concepts presented could
easily be adapted to a different environment. Especially valuable is a list of
"lessons learned" from the implementation. [I]
-
Rupp, Alan W., ABC: A Pilot Approach, Management Accounting,
January 1995, pp. 50-55.
-
Implementation of ABC got off to a slow start at the Chemicals Products
Division of the Lord Corporation: senior management listened, studied the plan,
and decided it was an unnecessary accounting exercise. The author explains, in
hindsight, why the pilot project failed to get off the ground. With their
lessons learned, they tried a pilot project at another division and were
successful. ABC models are maintained on Excel spreadsheets and are used for
strategic decision making. [I]
-
Anderson, James C., and James A. Narus, Capturing the Value of Supplementary
Services, Harvard Business Review, January-February 1995, pp.
75-83.
-
Are you giving away services just to get the business? How much are these
services actually costing you? Do you know how to value ancillary services?
The authors stress the strategic value of product related services and suggest
ABC as a method to value these services. With a cost and value identified for
each separate transaction, these transactions can then be combined in packages
that your customers value - in a cost effective manner. This is a thought
provoking look at how the services provided by a company can become competitive
advantages. [I]
-
Brinker, Barry J (editor), Chapter B5: Customer-Driven Costs Using
Activity-Based Costing, Handbook of Cost Management, Boston, MA:
Warren, Gorham, and Lamont, 1992, pp. B5-2 - B5-29.
-
Using ABC to analyze customer-driven costs provides significant insight into
which customers are profitable. Once these customers are identified, the
company can then target these customers, develop more effective customer
service policies and learn to cut costs without sacrificing customer service.
The customer-driven ABC system is very similar to a manufacturing ABC costing
system. [I]
-
Howell, Robert A., and Stephen R. Soucy, Customer Profitability - As
Critical as Product Profitability, Management Accounting, October
1990, pp. 43-47.
-
ABC analysis can be applied to customers as well as to products. Determining
customer profitability (by comparing the total cost associated with that
customer to the revenue stream produced by that customer) is as important as
determining product profitability. The article proposes a model called
Resource Costing to analyze customer profitability. This model is really ABC
in disguise. [I]
-
Kanal, Vijay, Which Customers Are Profitable?, US Distribution
Journal, March 15, 1992, pp. 12-14.
-
Distribution firms that rely on outdated methods to calculate profits and costs
are putting themselves at a serious disadvantage. The inability to identify
profitable and unprofitable customers is damaging their ability to compete.
Traditional accounting systems are ill equipped to assign costs to customers
who buy different products in different amounts with differing frequencies at
different locations. With ABC, it is possible to assign costs to customers -
and determine their profitability. [B]
-
Committe, Bruce E. and D. Jacque Grinnell, Predatory Pricing, The
Price-Cost Test, and Activity-Based Costing, Journal of Cost
Management, Vol. 6, No. 3, F92, pp. 52-58.
-
The application of ABC methodology to antitrust litigation is explored in this article. Antitrust statutes prohibit predatory pricing as an attempt to monopolize. The price-cost relationship is examined by the courts to determine if predatory pricing exists. This relationship is relied on by all courts to varying degrees. The federal circuit courts have become increasingly aware of the need to establish an appropriate measure of cost for the price-cost test. ABC is proposed as the most accurate measure of cost. [I]
Business Process Re-engineering (BPR)
- Briody, L. Patrick, Going From Cost-Plus to `Sink or Swim' Can Be as Easy as
ABC, Electrical World, August 1994, pp. 10-11.
-
ABC can be used by electric utility companies that are making the transition
from regulated industry to free competition. The ABC system at Carolina Power
and Light was implemented in conjunction with re-engineering efforts. [B]
-
Cokins, Gary, Finding the Crossroad to Change, Bobbin, August
1994, pp. 66-74.
-
ABC's role in BPR is examined. ABC identifies business processes that are
non-value-added and can be either reduced or eliminated. This is the heart of
BPR. Many companies attempt BPR after finding that slash and burn cost
reductions merely reduce their ability to compete. [B]
-
Moravec, Robert D. and Michael S. Yoemans, Using ABC to Support Business
Re-Engineering in the Department of Defense, Journal of Cost
Management, Vol. 6, No. 2, Su92, pp. 32-41.
-
ABC is a key component of the corporate information management program created
at the DoD because it provides relevant information for various efforts to
achieve process improvements. The objective of the program is to change the
way people work in the DoD. A pilot project on the in-house individual job
order process and the lessons learned from the pilot project are discussed.
[I]
-
Porter, Thomas F. and Joseph G. Kehoe, Using Activity-Based Costing and
Value Analysis to Take the Pain Out of Downsizing at a Naval Shipyard,
National Productivity Review, Winter 1993/1994, pp. 115-125.
-
A changing worldwide military environment has led to the restructuring of the
Charleston, SC Naval Shipyard. During the Cold War, quality and speed of ship
overhauls were emphasized with little regard to cost, Now, quality and speed
are still emphasized, but the customer (the government) demands much lower
costs. After personnel had been trimmed as much as possible, ABC was used to
streamline its support operations. ABC turned a very subjective procedure into
a data-driven, objective discussion of structure and staffing. There is also a
decision tree for value added analysis (to determine whether an activity is
value-added or non-value-added). [I]
-
Sharman, Paul A., Frame Breaking, Management Accounting, Vol. 74,
September 1992, pp. 52-55.
-
ABC's and management accountants' contributions to reengineering are examined.
An ABM implementation at Thor*Lo Socks is highlighted. [B]
-
Cahill, Jim, ECR: The Vision, the Reality, Beverage World,
(supplement), April 1995, pp. 16-17.
-
This article presents a concise overview of the process redesign inherent in
Efficient Consumer Response (exchange of POS data through EDI, transition to
"pull" replenishment from "push" replenishment, increased variety in
transportation, reduced inventory, etc.) ECR is the buzzword the grocery
industry has assigned to the developments in the supply chain distribution for
the industry. [B]
-
Freedman, Julian M., IMA's CIC Supports ECR's Use of ABC, Management
Accounting, May 1993, p. 70.
-
Five guiding principles of ECR, as developed by the grocery industry with
consultants Kurt Salmon Associates, Inc., are outlined. These principles are
within the assessment benchmarking approach planned for IMA's Continuous
Improvement Center (CIC). [B]
-
Valero, Greg, Do You Know Where Your Costs Are?, US Distribution
Journal, April 15, 1994, pp. 21-24.
-
The author identifies ABC as the "very foundation" of Efficient Consumer
Response. There are some interesting examples cited from the implementation of
ABC at Shrivner, Inc. and Wetterau (grocery wholesalers). [B]
-
Haedicke, Jack and David Feil, In a DoD Environment: Hughes Aircraft Sets
the Standard for ABC, Management Accounting, February 1991, pp.
29-33.
-
An ABC project at Hughes Aircraft is increasing cooperation between contractor
and the federal government. Recent changes in DoD procurement policies have
increased competition for contracts. Future contract winners will be the
companies with the lowest costs and the highest quality. The ABC
implementation at Hughes is discussed. [I]
-
Harr, David J., How Activity Accounting Works in Government,
Management Accounting, September 1990, pp. 36-40.
-
As a result of implementing ABC as budgeting and financial performance
measurements, the Naval Supply Systems Command reduced its operating costs
without losing the timeliness and quality of its services. ABC was
implemented at eight locations. The implementation at the Jacksonville, FL
facility is discussed. [I]
-
Harr, David J. and James T. Godfrey, Making Government `Profitable',
Management Accounting, February 1992, pp. 52-57.
-
Since governmental agencies do not operate in a profit seeking environment,
which cost-based financial performance measures as used in the private sector
should be used in governmental environments? A survey was conducted of private
sector organizations and the results are examined and summarized. [I]
-
Musso, Francis, J., Activity-Based Costing for Defense Contractors,
The CPA Journal, Vol. 62, May 1992, pp. 79-83.
-
A defense contractor faces ABC implementation obstacles that a commercial
enterprise does not. Defense contractors must follow Cost Accounting Standards
(CAS). These standards mandate that a change in accounting practice (i.e. a
change to ABC) must be disclosed to the federal government. If ABC results in
higher costs being charged to a particular project, the government reserves the
right to either increase payment or not. If ABC results in lower costs being
charged to a particular project, the government will adjust payment downwards.
The Truth in Negotiation Act may also discourage defense contractors from
adopting ABC. [I]
-
Compton, Ted R., Using Activity-Based Costing in Your Organization - Part
2, Journal of Systems Management, April 1994, pp. 36-39.
-
ABC application in an computerized information systems environment is
discussed. The use of ABC allows the computer support group to focus on
value-added activities of the information system. Identifying those activities
that add value to customer service is an essential component of continuous
improvement and TQM programs. [I]
-
Menzano, Ralph, J., Activity-Based Costing for Information Systems,
Journal of Cost Management, Vol. 5, No. 1, Sp91, pp. 35-39.
-
As information systems evolve from centralized facilities to networked computer
systems, the costs of providing information become blurred. ABC can be applied
to the area of information technology to analyze and identify the costs of
providing diverse information to many different users. [I]
-
DeLuzio, Mark C., Management Accounting in a Just-in-Time Environment,
Journal of Cost Management, Vol. 6, No. 4, W93, pp. 6-15.
-
The management accounting system must change in a company that adopts JIT.
Traditional accounting measurements typically fail to measure the things that
are important in a JIT environment and often promote dysfunctional behavior in
a JIT environment. The author explains how traditional accounting systems
conflict with JIT and suggests ways to improve management accounting systems so
that they work with, and not against, JIT. [I]
-
Foster, George and Charles T. Horngren, Cost Accounting and Cost Management
in a JIT Environment, Journal of Cost Management, Vol. 1, No. 4,
W88, pp. 4-14.
-
The impacts of JIT on cost accounting, cost management and management
accounting are explored. The article is based on discussions with managers of
domestic and foreign organizations that have adopted JIT. Discussions with
public accounting firms and consulting firms engaged by organizations adopting
JIT also form part of the article's basis. [I]
-
Green, F. B., and Felix Amenkhienan and George Johnson, Performance Measures
and JIT, Management Accounting, February 1991, pp. 50-53.
-
Traditional cost systems tend to impair JIT implementation because of their
reliance on standards, emphasis on variances, preoccupation with direct labor
and their inappropriate measures of performance. The authors recommend
overhead allocations bases other than direct labor (because frequently there is
no direct labor attributed to the product in JIT environments). Bases should
be revised to reflect the actual causes of the overhead cost. Examples of
allocation bases for one JIT location are given. Revised performance measures
are based on revised costs generated by the ABC style system. [I]
-
MacArthur, John B., The ABC/JIT Costing Continuum, Journal of Cost
Management, Vol. 5, No. 4, W92, pp. 61-63.
-
The author proposes the use of ABC for companies with heterogeneous products
(i.e. companies that may not be able to implement full blown JIT purchasing and
production systems). For companies with homogeneous product groups, JIT may
prove the superior method. [I]
-
Redman, Perry M., Cost Accounting Changes Used to Increase Cost Reporting
Response, Journal of Cost Analysis, Spring 1994, pp. 125-134.
-
Traditional cost systems are no longer acceptable for corporations seeking to
increase the speed and accuracy of reporting cost changes in a JIT environment.
ABC can help to improve cost system communications. The author addresses some
techniques that can be used to increase the responsiveness of cost reporting
systems. ABC, even with the limitations identified by the author, is an
effective method of tracing costs to their associated drivers. [I]
-
Tyndall, Gene R., Just-in-Time Logistics: Added Value for Manufacturing Cost
Management, Journal of Cost Management, Vol. 3, No. 1, Sp89, pp.
54-59.
-
ABC is not specifically addressed in this article. Instead, the principles of
JIT logistics are discussed. JIT requires either 1) improved customer service
at the same cost or 2) current levels of customer service at lower cost. JIT
strives to eliminate waste in operations, and ABC analysis can be used to
identify this waste. [I]
-
Andel, Tom, Get Fit for the Future: Warehousing Does Have a Future. Learn
What It Will Take to Be a Part of It, Transportation &
Distribution, January 1995, pp. 83-87.
-
The author does not explore the technicalities of ABC costing in the
warehousing function. Rather, he stresses the importance of process redesign
to the survival of the warehousing function. Key to the success of redesign
are upgraded information systems and a quality workforce. Good source of
background information on developments in the distribution area. [B]
-
Andel, Tom, Ready....Fire...Aim!, Transportation &
Distribution, July 1993, p. 54.
-
What are the costs of operating a warehouse? Many managers have a good grasp
of the overall costs - the cost of labor and space - but few have a good grasp
of the transactional costs. ABC can be used to determine order and customer
profitability by determining the costs of product movement and storage. [B]
-
Auguston, Karen A., Activity-Based Costing Adds Up to Big Benefits,
Modern Materials Handling, June 1993, pp. 57-59.
-
MMH interviews Dr. Thomas Cullinane of Northeastern University.
Cullinane, an expert on engineering economy, advocates the use of ABC to
quantify "non-financial" benefits that result from material handling projects.
ABC measures, in additional to the standard financial measures, could increase
the chances of a project being approved. [B]
-
Datar, Srikant, Sunder Kekre, Tridas Mukhopadyay and Eric Svaan, Overloaded
Overheads: Activity-Based Cost Analysis of Material Handling in Cell
Manufacturing, Journal of Operations Management, Vol. 10, No. 1,
January 1991, pp. 119-137.
-
The authors discuss the results of their field study which illustrates the use
of ABC to quantify the benefits of cell manufacturing and synchronized process
flows. The area of materials handling within cell manufacturing was identified
as a promising area for ABC analysis. As expected, the ABC system supported
the improvements made in moving to cell manufacturing. Although the material
flow examined is manufacturing oriented, many of the concepts can easily be
transferred to distribution material handling. [I]
-
Donnelly, Harrison, Still Struggling on Supply Chain Improvements,
Stores, March 1995, pp. 56-57.
-
A study prepared by Anderson Consulting indicates that mass merchandisers, long
thought to be the pioneers in supply chain management, still face numerous
opportunities to reduce costs and enhance customer service. Many of these
businesses are hampered by incompatible information systems between supply
chain links and an overabundance of information that is not fully utilized.
Vendors are frustrated by the difficulties in complying with "the Wal-Mart way,
the K-Mart way and the Target way". The use of ABC is suggested as a way to
identify which link in the supply chain is the most efficient provider of a
particular service. Information is given on how to obtain a copy of the
Anderson report. [B]
-
Drucker, Peter F., The Information Executives Really Need, Harvard
Business Review, January-February 1995, pp. 54-62.
-
Drucker advocates managing a business as a part of the entire economic chain.
The shift from cost-led pricing to price-led costing, in his opinion, will
force companies into economic chain costing. The company must know the costs
of the entire value chain and recognize which link in the chain is able to
perform a given function more efficiently. ABC can be used to identify whether
an activity needs to be done and, if so, where is it best done. History has
shown again and again that a company which enjoys a cost advantage (by
identifying the costs of the entire value chain and managing these costs)
overtakes the established leaders in a market segment. [I]
-
Gooley, Toby B., Finding the Hidden Cost of Logistics, Traffic
Management, March 1995, pp. 47-53.
-
ABC exposes the hidden costs of selling to customers - particularly when they
demand LTL shipments, special labeling, direct delivery to retail outlets and
last minute order changes. ABC analysis identifies opportunities for cost
reductions to improve profit margins on sales to difficult customers (those who
demand the above activities). Illustrations are provided for the order
fulfillment function. [I]
-
Henkoff, Ronald, Delivering the Goods, Fortune, November 28,
1994, pp. 64-78.
-
The tone of this article can be summarized with the following quote:
"Logistics, long an unsung, operations-intensive area, has suddenly become very
strategic". The author examines several companies who've found operating
opportunities in the logistics area after applying ABC techniques to capture
the costs of particular activities. These companies include Compaq, National
Semiconductor and Saturn. As a contrast, the grocery industry is also
profiled. Not much detail on ABC but an interesting article for background.
[B]
-
Herr, John D., Managing Logistics Costs as a Business Investment,
Emerging Practices in Cost Management, Barry J. Brinker, ed.,
Boston, MA: Warren, Gorham & Lamont, 1990, pp. 219-224.
-
Understanding the comprehensive and true costs of logistics and using this
knowledge to improve the distribution chain can lead to improved performance
and profitability. A well-designed logistics function supports the company's
overall strategy and adds value above and beyond its cost. [I]
-
Houlihan, John B., International Supply Chain Management,
International Journal of Physical Distribution and Materials
Management, Vol. 15, No. 1, 1985, pp. 22-38.
-
Competitive pressures and changes in the economic climate have forced
management of international companies to re-evaluate the operation and
structure of international supply chains. The concepts underlying new
approaches to managing change in international chains are described. Also
discussed are the barriers that need to be overcome and some of the lessons
learned from implementation. [I]
-
Institute of Management Accountants, Practices and Techniques: Cost
Management for Freight Transportation, Statements of Management Accounting,
Statement No. 4I, June 1, 1989.
-
The intent of this publication is to assist management accountants in improving
the way in which costs associated with the transportation of freight are
identified, measured and managed. The intended audience consists of
accountants and other people not necessarily familiar with logistics. [I]
-
Institute of Management Accountants, Practices and Techniques: Cost
Management for Logistics, Statements of Management Accounting, Statement
No. 4P, June 30, 1992.
-
The intent of this publication is to assist management accountants in improving
the way in which logistics costs are identified, measured and managed. The
intended audience consists of accountants and other people not necessarily
familiar with logistics. [I]
-
Institute of Management Accountants, Practices and Techniques: Cost
Management for Warehousing, Statements of Management Accounting, Statement
No. 4K, September 7, 1989.
-
The intent of this publication is to assist management accountants in improving
the way in which costs associated with warehousing goods are identified,
measured and managed. The intended audience consists of accountants and other
people not necessarily familiar with logistics. [I]
-
Kanal, Vijay, Which Customers Are Profitable?, US Distribution
Journal, March 15, 1992, pp. 12-14.
-
Distribution firms that rely on outdated methods to calculate profits and costs
are putting themselves at a serious disadvantage. The inability to identify
profitable and unprofitable customers is damaging their ability to compete.
Traditional accounting systems are ill equipped to assign costs to customers
who buy different products in different amounts with differing frequencies at
different locations. With ABC, it is possible to assign costs to customers -
and determine their profitability. [B]
-
La Londe, Bernard J. and Terrance L. Pohlen, Researchers Identify
Implications of ABC Implementation for Transportation Industry,
Transport Topics, October 4, 1993, pp. 13-14.
-
The authors apply ABC to the transportation function. Research performed by
the Transportation and Logistics Research Group at Ohio State University
indicates that most firms initially implemented ABC in order to compute more
accurate product costs or to improve performance measurement. However, most
also identified increased competitiveness as an unexpected benefit. ABC can be
used to evaluate the performance of parties in the supply chain. ABC based
information will also affect carrier evaluation process. [I]
-
Magnet, Myron, The New Golden Rule of Business, Fortune, February
21, 1994, pp. 61-64.
-
Close customer-supplier relationships help trim costs in today's predatory
world economy. Improved quality, design and speed result from such
relationships. A well-maintained relationship yields benefits for both
supplier and customer. ABC identifies costs, such as marketing and sales,
that are unnecessary in a maintained relationship. The customer pays for only
the services it gets. [B]
-
Manning, Kenneth H., Distribution Channel Profitability, Management
Accounting, January 1995, pp. 44-48.
-
The author applies ABC methodology to the distribution channel. Customer
demands on the channel and the choice of channels itself are identified as cost
drivers in the ABC system. Costs are aggregated into three types: product
related costs, channel related costs and customer related costs. The approach
is outlined as a easily understood four-step process. ABC has historically
focused on product related costs, but the approach transfers easily to customer
service, transportation, analysis of outsourced products/activities, etc.
[I]
-
Orgel, David, Spartan Takes Re-engineering Up a Notch, Supermarket
News, September 19, 1994, pp. 1-2.
-
Spartan Stores is in the process of implementing ABC in its transportation
function as a pilot project. The company has completed interviews with
transportation associates and has collected the relevant cost data. Spartan's
objective is to use ABC as a decision making tool. [B]
-
Partridge, Mike and Lew Perren, Cost Analysis of the Value Chain: Another
Role for Strategic Management Accounting, Management Accounting
(UK), July/August 1994, pp. 22-24.
-
Traditional cost systems are ill equipped to provide relevant information for
analysis of value chain costs. ABC, with its focus on activity analysis, is a
natural choice for value chain analysis. The authors provide an attribute cost
model which demonstrates the collection of information necessary for value
chain activity analysis. There is also a comparison of traditional cost
systems and value chain cost analysis which highlights the shortcomings of
traditional systems. [I]
-
Pendlebury, John and Richard Platford, The Heavy Hidden Cost of Materials
Handling, Journal of Cost Management, Vol. 2, No. 1, Sp88, pp.
4-8.
-
Storage has usually been treated as a free resource and materials handling
either as an unavoidable port of direct labor or fixed factory overhead.
However, increased competition has forced companies to streamline costs and
processes. Although ABC is not mentioned in this article (it appeared prior to
the explosion of ABC literature), the author points out that the lack of
understanding about distribution costs is a result of a lack of analysis - due
to the difficulty of collecting the information in a traditional cost setting.
[I]
-
Pohlen, Terrance L., Applications of Activity-Based Costing Within
Logistics: Who is Using Activity-Based Costing and Where?, 1993 Proceedings
of the Annual Conference of the Council of Logistics Management, Washington,
DC.
-
The results of a survey performed by the Transportation and Logistics Research
Group of The Ohio State University are presented. Eleven organizations
participated in a case study analysis. The objective of the case studies was
to obtain in-depth information regarding how and where the eleven organizations
had used ABC to support logistics decision-making. Possible future directions
of ABC implementation within logistics are discussed. [I]
-
Pohlen, Terrance L. and Bernard J. La Londe, Implementing Activity-Based
Costing (ABC) in Logistics, Journal of Business Logistics, Vol. 15,
No. 2, 1994, pp. 1-24.
-
The accounting of and control over logistics costs will become increasingly
important to firms seeking competitive advantages. ABC provides logistics
firms with a more accurate system for costing activities and measuring
performance. Logistics costs typically are buried in a company's overhead, and
logistics managers often do not have control over costs they haven't
identified. The level of ABC sophistication necessary is based on the firms'
objectives, ongoing capability to track activity information, the proportion of
indirect costs, and the diversity of products, services, customers or supply
channels. The results of a survey polling ABC use in logistics areas are
discussed. [I]
-
Quillian, Lawrence F., Curing "Functional Silo Syndrome" with Logistics
TCM, CMA Magazine, June 1991, pp. 9-14.
-
Key elements of Total Cost Management are ABC, process value analysis and
performance measurement. TCM can act as a catalyst for integrating isolated
logistics functions, leading to substantial improvements in costs, cycle times,
inventories and levels of customer service. [I]
-
Rogers, Dale S. and Timothy M. Vaio, The Application of Activity-Based
Costing to Distribution Systems, Unpublished Working Paper, University of
Nevada, Reno.
-
The authors apply ABC to the distribution function. Bar coding is suggested to
improve both the quality and collection costs of the cost data. An ABC model
developed for a large semiconductor firm is discussed. There is a good
graphical representation of the model which identifies the cost drivers used in
the ABC model. [B-I]
-
Roth, Harold P., and Linda T. Sims, Costing for Warehousing and
Distribution: Using ABC in a Warehouse Can Affect the Bottom Line,
Management Accounting, Vol. 73., No. 2, August 1991, pp. 42-45.
-
ABC is applied to the warehousing function. Examples of activities and cost
drivers are given. [B]
-
Shank, John K. and Vijay Govindarajan, Strategic Cost Management and the
Value Chain, Journal of Cost Management, Vol. 5, No. 4, W92, pp.
5-21.
-
The author explains how to construct and use value chains. A case study in the
airline industry reveals that traditional management accounting approaches fail
to provide relevant information about the value chain. The author examines how
ABC and similar cost management tools can be usefully accommodated within the
value chain concept. [I]
-
Thomas, Jim, As Easy as ABC, Chilton's Distribution, January
1994, pp. 40-41.
-
ABC use at Nabisco Foods Group is discussed. The enormous diversity in
products and distribution channels makes ABC a superior method of allocating
overhead costs for this company. [I]
-
Tyndall, Gene R., Analyzing the Costs and Value of the Product Distribution
Chain, Journal of Cost Management, Vol. 2, No. 1, Sp88, pp. 45-51.
-
Costs are the driving force behind major changes in distribution channels. A
fundamental issue is assessing the costs and value of various distribution
channels for different products and different markets. The methodology
suggested by the author is a form of ABC. [I]
-
Tyndall, Gene R., Logistics Cost and Service Levels: Evaluating the
Trade-offs, Emerging Practices in Cost Management, Barry J.
Brinker, ed., Boston, MA: Warren, Gorham & Lamont, 1990, pp. 211-217.
-
Increased service levels can increase logistics costs significantly. Finding
the proper level of service given the costs requires an organization to
identify, measure and evaluate the trade-offs among logistics activities. [I]
-
Tyndall, Gene R., Obtaining Better Information to Control Freight Costs:
Some Guidelines, Journal of Cost Management, Vol. 2, No. 2, Sm88,
pp. 55-61.
-
A key to managing freight costs is having the right information available at
the right time and in the right format for supporting decisions about carrier
selection, routing and scheduling. The author presents practical guidelines
for obtaining the appropriate information. ABC is not addressed in the
article, but it is clear that ABC has the capability to provide the needed
information as identified by the author. [I]
-
Chalos, Peter, Costing, Control and Strategic Analysis in Outsourcing
Decisions, Journal of Cost Management, W95, pp. 31-37.
-
Empirical evidence suggests that companies do not always realize the expected
benefits of outsourcing. One explanation points to the underestimation of
transaction and coordination costs. Another explanation points to the fact
that accounting costs (with arbitrary fixed cost allocations) are often used in
outsourcing analyses. [I]
-
Ellram, Lisa M., Activity-Based Costing and Total Cost of Ownership: A
Critical Linkage, Journal of Cost Management, Vol. 8, No. 4, W95,
pp. 22-30.
-
ABC and TCO are compared and contrasted with a focus on the purchasing
function. The author also lists potential cost drivers for purchasing
activities. [I]
-
Porter, Anne Millen, Tying Down Total Cost, Purchasing, October
21, 1993, pp. 38-43.
-
ABC and ABM are applied to the purchasing function. ABM reveals the upstream
costs/benefits from poor/good purchasing decisions. ABC provides the mechanism
to evaluate purchasing's performance on a company-wide basis. ABC's
relationship to the total cost of ownership is also discussed. [I]
-
Roehm, Harper A., Melissa A. Critchfield and Joseph F. Castellano, Yes, ABC
Works with Purchasing, Too, Journal of Accountancy, November 1992,
pp. 58-62.
-
The authors tested the feasibility of applying ABC to purchasing.
ABC worked well when used to analyze a purchasing department, and the
information it provides is especially helpful when establishing a product's
price and in determining its contribution to profit. [I]
-
Canby, James B., Applying Activity-Based Costing to Healthcare Settings,
Healthcare Financial Management, February 1995, pp. 50-55.
-
ABC is applied to a healthcare setting. The discussion of ABC is fairly
non-technical but there are several examples given from the healthcare
application. [I]
-
Crane, Michael and John Meyer, Focusing on True Costs in a Service
Organization, Management Accounting, February 1993, pp. 41-45.
-
Fireman's Fund took a "snapshot" of its operating expenses to develop a clearer
picture of its product, customer and activity costs. Sampling techniques were
used to derive the activity analysis because it was particularly difficult to
measure employees' time spent on a given activity. ABC generated costs
confirmed what intuition had suspected: small accounts were more expensive to
process than large accounts. Fireman's Fund redesigned processes to
incorporate this new information. [I]
-
Pirrong, Gordon D., As Easy as ABC: Using Activity-Based Costing in Service
Industries, The National Public Accountant, February 1993, pp.
22-27.
-
Incorrect cost allocations to jobs in service firms will result in the firm not
being competitive when bidding jobs. Performance measurement will also be
negatively affected. ABC can readily be adapted to use by labor intensive
service industries. [I]
-
Rodgers, Jacci L., S. Mark Comstock and Karl Pritz, Customize Your Costing
System, Management Accounting, May 1993, pp. 31-32.
-
Management of a printing company tailored ABC to meet their particular need: a
quick method of calculating accurate bid estimates. The company had been
operating at full capacity and losing money. The ABC based system incorporates
machine constraints in calculating bids. Prior to the new bidding system, jobs
were bid without knowledge of which press (with its related costs) would run
the job. [I]
-
Rotch, William, Activity-Based Costing in Service Industries, Journal
of Cost Management, Vol. 4, No. 2, Sm90, pp. 4-14.
-
Can ABC be applied in a service setting? It can be - with some difficulty,
depending on the industry and product. Defining output is usually more
difficult due to the many intangible qualities of "service", and since services
are not inventoriable, unused capacity is often an unavoidable cost. Systems
designed for two railroads (freight and passenger), a data processing company
and a hospital are discussed in general terms. [I]
-
Brausch, John M., Beyond ABC: Target Costing for Profit Enhancement,
Management Accounting, November 1994, pp. 45-49.
-
The author walks his audience through a process redesign at Culp, Inc. that was
precipitated by a conversion to target costing. Analysis of the "current"
product costs revealed that the vast majority of manufacturing costs (80%) were
established during the product design stage. All previous efforts at cost
management had focused on the 20% of costs not dictated by product design. The
design process was revised so that costs were minimized up front. This, in
turn, led to the ability to meet customer dictated target costs. [I]
-
Shim, Eunsup, and Ephraim F. Sudit, How Manufacturers Price Products,
Management Accounting, February 1995, pp. 37-39.
-
The authors examine the relationship between product cost and product price.
They identify a shift towards target costing (the cost the customer will
accept) from full costing (full cost plus markup). If costs are not currently
allocated to multiple products using appropriate methods in a full costing
system, the use of ABC may reduce distortion in product cost (and price) under
the cost-plus approach. Herbert Simon's "satisficing" model is analyzed as a
compromise between the economic "marginal cost = marginal revenue" profit
maximization model and true variable costing. The authors arrive at their
conclusions by comparing the results of surveys conducted in 1983 and 1993. [I]
-
Carr, Lawrence P. and Christopher D. Ittner, Measuring the Cost of
Ownership, Journal of Cost Management, Vol. 6, No. 3, F92, pp.
42-51.
-
Many cost systems motivate managers to select suppliers based solely on quoted
price. Total cost of ownership theory assesses purchasing department and
supplier performance on a "total cost of doing business" basis. This includes
the purchase price plus the costs of purchasing, the costs of holding, the
costs of poor quality and the costs of delivery failure. Traditional cost
systems tend to bury all but the purchase price in overhead accounts. This
leads to decisions based solely on quoted price. An ABC system can support a
TCO approach by identifying and highlighting these buried costs. [I]
-
Ellram, Lisa M., Activity-Based Costing and Total Cost of Ownership: A
Critical Linkage, Journal of Cost Management, Vol. 8, No. 4, W95,
pp. 22-30.
-
ABC and TCO are compared and contrasted with a focus on the purchasing
function. The author also lists potential cost drivers for purchasing
activities. [I]
-
Goldenberg, Charles B. and Donald H.Turner, Cost of Ownership: As Easy as
ABC?, NAPM Insights, September 1991, pp. 10-11.
-
Companies are now using ABC data to model the cost of business processes.
These analyses are critical to developing cost-of-ownership measurements. ABC
is gaining acceptance as more companies use these techniques to determine the
impact on costs from various suppliers during design, manufacture and service.
[B]
-
Armitage, Howard and Grant Russell, Activity-Based Management
Information: TQM's Missing Link, CMA Magazine, March 1993, p. 7.
-
Quality programs do not give adequate consideration to cost and do not drive
accountability for bottom-line performance deep into the organization. The
lack of accountability at operator levels is a major omission of most TQM
programs. Individuals are unaware of the impact their improvements have on the
profitability of the organization. ABM attempts to correct this deficiency.
[I]
-
Beheiry, Mohammed F., New Thoughts on an Old Concept: The Cost of
Quality, CMA Magazine, June 1991, pp. 24-25.
-
The role of ABC in achieving quality objectives is discussed. ABC quantifies
additional costs of non-conformance to requirements by focusing attention on
the activities that consume the majority of costs. [B]
-
Carlson, David A. and S. Mark Young, Activity-Based Total Quality Management
at American Express, Journal of Cost Management, Vol. 7, No. 1,
Sp93, pp. 48-58.
-
The author illustrates how ABC contributes to improved quality and more
accurate product costing at American Express Integrated Payment Systems (IPS).
[I]
-
Pieper, Chris M., Closing the Circle on Quality, White Paper, Beaverton,
OR: ABC Technologies, Inc., 1993.
-
The author characterizes the three critical issues in a quality program as
cost, quality and time. TQM initiatives have focused on quality and time with
little or no verifiable emphasis on cost. Pieper proposes a new approach, TQM
Plus, which adds ABC methodology to the TQM concept. Four implementation steps
are discussed. There is a matrix showing the different costs of quality
(prevention, appraisal, internal repair and external repair costs) in various
functions (engineering, purchasing, manufacturing, customer service and
R&D). [I]
-
Steimer, Thomas E., Activity-Based Accounting for Total Quality,
Management Accounting, Vol. 72, No. 4, October 1990, pp. 39-42.
-
ABC is perfectly suited to TQM because it encourages management to analyze
activities and determine their value to the customer. The author examines ABC
in the context of the services performed by the "home office" for multiple
business units. ABC prices these services and allows unit managers control
over allocations of administrative costs. [I]
-
Holmen, Jay S., ABC vs. TOC: It's a Matter of Time, Management
Accounting, January 1995, pp. 37-40.
-
The author examines the apparent conflict between the ABC and TOC approaches to
managerial decision making. Proponents of each theory dismiss the other theory
as irrelevant. However, the author reclassifies the conflict to one of time
horizon: ABC is a long term approach whereas TOC focuses on the short term.
TOC's recognition of constraints is a valid approach in short term time frames
when an assumption is made that the constraints are fixed. ABC's focus on
consumption, not spending, is more appropriate to longer time frames during
which management can adjust spending levels to reflect consumption. The
article provides a concise list of assumptions for each theory. [I]
-
MacArthur, John B., Theory of Constraints and Activity-Based Costing:
Friends or Foes?, Journal of Cost Management, Vol. 7, No. 2, Sm93,
pp. 50-55.
-
TOC and ABC are seen as complementary approaches to continual process
improvement. TOC focuses on short term maximization of constrained resources
for maximizing "long-run profit". ABC measures the long-run cost of
activities. Both seek to identify non-value-added activities (ABC) and waste
activities (TOC) with the goal of eliminating them. Both systems provide
management with information that can be used for strategic purposes. [I]
-
Spoede, Charlene, Emerson O. Henke and Mike Umble, Using Activity Analysis
to Locate Profitability Drivers, Management Accounting, May 1994,
pp. 43-48.
-
The activity analysis performed as part of the ABC implementation provides
detailed information about the capacity of individual resources. This
information is utilized in the Theory of Constraints model to determine
appropriate product mixes given set resource constraints. It is the TOC model,
not the ABC model, that accurately determines optimal product mix. [I]
-
ABC Beats Old-Style Costing Survey Finds, Accounting Today, June
6, 1994, p. 14.
-
A survey conducted by the Institute of Management Accountants indicates that
more and more companies are abandoning their traditional cost accounting
systems and are using their previously off-line ABC systems as their primary
cost accounting systems. [B]
-
Innes, John and Falconer Mitchell, ABC: A Survey of CIMA Members,
Management Accounting (UK), October 1991, pp. 28-30.
-
The findings of a UK survey conducted in September 1990 are discussed. Almost
half of the respondents had considered implementing ABC. At the time of the
survey, most were still assessing the value of ABC to their organizations.
Among the firms who had implemented ABC, the feedback was predominantly
positive. [I]
-
Jayson, Susan, Fax Survey Results: ABC Is Worth the Investment,
Management Accounting, April 1994, p. 27.
-
Survey results indicate that most companies undertook an ABC implementation in
order to obtain 1) more accurate product costs, 2) more relevant information
for decision-making, and 3) improved performance measurements. Some
respondents reported that ABC has provided less than desirable results for a
variety of reasons. [B]
-
Borden, James P., Review of Literature on Activity-Based Costing,
Journal of Cost Management, Vol. 4, No. 1, Sp90, pp. 5-12.
-
The body of ABC literature to date is reviewed by the author. The emphasis is
on product costing in a manufacturing environment. [I]
-
Ferrara, William L., Implementing Activity-Based Cost Management: Moving
from Analysis to Action, Accounting Review, October 1993, pp.
959-960.
-
The author reviews the named book by Cooper, Kaplan, Maisel, Morrissey and
Oehm. Ferrara would prefer to see fewer cases with more detail each. This
would assist practitioners in implementing ABC on their own. [B]
-
Freedman, Julian M., CAM-I Meeting Features IMA's ABC Study,
Management Accounting, February 1993, p. 69.
-
Freedman reviews the activities during the fourth quarter meeting of the Cost
Management Systems (CMS) program of CAM-I (Computer Aided Manufacturing -
International). [B]
-
Freedman, Julian M., Primer Simplifies ABC, Management
Accounting, April 1993, p. 68.
-
An IMA publication, ABC Primer, is reviewed. Freedman sees ABC
Primer as a natural companion to the IMA's research study Implementing
Activity-Based Cost Management: Moving from Analysis to Action (Cooper,
Kaplan, Maisel, Morrissey and Oehm). The primer results from work done by
CAM-I, the Consortium for Advanced Manufacturing - International. [B]
-
King, Alfred M., Relevance Regained: From Top-Down Control to Bottom-Up
Empowerment, Management Accounting, July 1993, p. 70.
-
The author reviews the named book by H. Thomas Johnson. He recommends that
companies still trying to decide whether to invest in ABC should read this book
immediately. [B]
-
McGaffic, Robert W., Activity-Based Costing for Small and Mid-Sized
Businesses: An Implementation, Management Accounting, July 1993, pp.
70-71.
-
The author reviews the named book by Douglas T. Hicks. Hicks has scaled down
ABC for small and medium size businesses - a welcome relief from the ABC
implementations in large businesses usually profiled by other authors. Hicks
recognizes that small and medium sized businesses typically do not have the
financial resources to support a massive ABC system. [B]
-
Antos, John, Activity-Based Management for Service, Not-for-Profit and
Governmental Organizations, Journal of Cost Management, Vol. 6, No.
2, Sm92, pp. 13-23.
-
ABM implementation in a medical malpractice insurance firm, an oil exploration
and production firm and the federal government (state reimbursements for food
stamp claims and social security disability claims) are examined. Also
examined are implementations in a hospital accounts receivable department, a
uniform laundering and delivery service and the fund-raising activities of a
health and welfare organization. [I]
-
Beynon, Roger, Change Management as a Platform for Activity-Based
Management, Journal of Cost Management, Vol. 6, No. 2, Sm92, pp.
24-30.
-
Ignoring the impact of employees' reaction to change is a sure way to doom the
success of a ABM program. Ten key actions are presented to improve the chances
of a successful ABM implementation. The article also explores behavioral
resistance to change. [I]
-
Brinker, Barry J (editor), Chapter B4: Using Activity-Based Costing to
Improve Performance, Handbook of Cost Management, Boston, MA:
Warren, Gorham, and Lamont, 1992, pp. B4-2 - B4-26.
-
The key to improvement is using ABC generated information to change the
organization and support continuous improvement. This is the foundation of
ABM. Several examples are given to illustrate the potential benefits of using
ABC information to improve operations. [I]
-
Campi, John P., It's Not as Easy as ABC, Journal of Cost
Management, Vol. 6, No. 2, Sm92, pp. 5-11.
-
ABC is only one of the many components of ABM. ABM is the umbrella structure
for the cultural change that US businesses must undergo in order to compete
internationally. Other components include TQM, JIT, total customer
satisfaction and employee empowerment. The historic focus on short term results
(mostly financial) has undermined American business' competitiveness. Quality,
customer satisfaction, time to market, etc. have become the global measurements
of success. [I]
-
Clark, Alex and Alexander Baxter, ABC + ABM = Action: Let's Get Down to
Business, Management Accounting (UK), June 1992, pp. 54-55.
-
ABM, the logical extension of ABC, is a tool that accountants can use to step
outside their narrowly defined role (by others) and participate in the
management of the business. Through ABM, the accountant's focus will shift
from looking backwards to looking forwards. [B]
-
Cooper, Robin, Robert S. Kaplan, Lawrence S. Maisel, Eileen Morrissey and
Ronald M. Oehm, From ABC to ABM: Does Activity-Based Management
Automatically Follow From an Activity-Based Costing Project?, Management
Accounting, November 1992, pp. 54-57.
-
Eight implementations of ABC (five manufacturers, a financial services company,
a finance department and a distribution company) are discussed. The companies
found that one of the first benefits was the mapping of the organization's
expenses from functional categories to processes. Resources devoted to the
implementation at each site are examined. Interestingly, many of the companies
had not acted on the findings generated by the ABC study. This leads the
authors to conclude that ABM does not automatically follow ABC. [I]
-
Greenwood, Thomas G., and James M. Reeve, Activity-Based Cost Management for
Continuous Improvement: A Process Design Framework, Journal of Cost
Management, Vol. 5, No. 4, W92, pp. 22-40.
-
The authors present an ABC framework that can be used to support process
analysis, product costing, process modeling and planning, and high-order cost
driver relationships. [A]
-
Keys, David E., Tracing Costs in the Three Stages of Activity-Based
Management, Journal of Cost Management, Vol. 7, No. 4, W94, pp.
30-37.
-
Three methods are assigning costs are discussed: 1) direct tracing, 2) cause
and effect cost assignment and 3) cost allocation. Previous ABC literature has
discussed a two stage assignment of costs: 1) the assignment of costs to
activities and 2) the assignment of activities to products or services. The
author suggests that a third stage of cost assignment should be addressed even
before these two stages: the assignment of costs to the correct year.
Assigning costs to years in accordance with GAAP (a traditional costing
approach) often leads to costs being assigned to the year of occurrence, not
the year of benefit. [I]
-
Lamond, Stewart, Activity-Based Management: An Australian Perspective,
Journal of Cost Management, Vol. 6, No. 2, Su92, pp. 42-46.
-
ABM at three Australian companies (Parke Davis, ICI Film Products and Comalco
Rolled Products) is discussed. ABM is becoming a major force in management
accounting in Australia. [I]
-
Raffish, Norm and Peter B. B. Turney, Glossary of Activity-Based
Management, Journal of Cost Management, Vol. 5, No. 3, F91, pp.
53-63.
-
The primary objective of the glossary is to standardize and, where necessary,
develop a set of terms about activity-based management. The glossary has been
prepared by the Computer Aided Manufacturing-International, Inc. (CAM-I) Cost
Management System program. The glossary should be required reading for anyone
researching ABM. [I]
-
Ray, Manash R. and Theodore W. Schlie, Activity-Based Management of
Innovation and R&D Operations, Journal of Cost Management, Vol.
6, No. 4, W93, pp. 16-22.
-
ABC and ABM can be used for purposes other than product costing (the original
focus). These other uses include design for manufacturability, process design,
overhead value analysis and performance measurement. A feasibility study
should be completed prior to implementation to assess the potential benefits of
ABM systems in the areas of innovation and R&D. [I]
-
Shephard, Nick, Economics of Quality and Activity-Based Management: the
Bridge to Continuous Improvement, CMA Magazine, March 1995, p. 29.
-
This article examines the relationships between total quality management (TQM),
quality systems and activity-based costing. TQM is characterized as a
pervasive philosophy permeating all business activities. Quality systems are
the building blocks on which TQM is built. The previously hidden costs of
quality are identified through the use of an ABC system. The article provides
a nice conceptual introduction to the applicability of ABC to quality
concerns.
-
Soloway, Lewis J., Using Activity-Based Management Systems in Aerospace and
Defense Companies, Journal of Cost Management, Vol. 6, No. 4, W93,
pp. 56-66.
-
The experiences of aerospace and defense contractors with ABM systems (and the
DCAA) are discussed. [I]
-
Turney Peter B. B., Activity-Based Management: ABM Puts ABC Information to
Work, Management Accounting, January 1992, pp. 20-25.
-
The real key to success is putting ABC information to work to identify
appropriate strategies, improve product design and remove waste from operating
activities. This is the heart of ABM. The ABC model has two parts: the cost
assignment view and the process view. The process view identifies improvement
opportunities. Guidelines for activity analysis are given. The elements of an
effective performance measurement system that fosters improvement are also
outlined. [I]
-
Turney, Peter B. B., Beyond TQM: With Workforce Activity-Based
Management, Management Accounting, September 1993, pp. 28-31.
-
Turney identifies three crucial elements of workforce ABM: 1) ABC information,
2) a group process, and 3) focus. The organization must be focused on process
improvement in order for ABM to work. All employees participate in WABM - from
the janitor up. This leads to employee ownership of improvements and greater
acceptance of their implementation. WABM integrates ABC into the world of work
teams and TQM and goes far beyond what either ABC or TQM can accomplish
separately. [I]
-
Turney, Peter B. B. and Alan J. Stratton, Using ABC to Support Continuous
Improvement, Management Accounting, Vol. 54, No. 3, September 1992,
pp. 46-50.
-
ABC implementation efforts at National Semiconductor Corp. are discussed. The
authors explain how a two-dimensional ABC model using micro and macro
activities supplies the information necessary to support continuous
improvement. [I]
-
Player, R. Steven and David E. Keys, Lessons From the ABM Battlefield:
Getting Off to the Right Start, Journal of Cost Management, Vol. 9,
No. 1, Sp95, pp. 26-38.
-
First installment in a three article series. This article addresses problems
(mostly behavioral) that may arise in ABM implementations. Examples of the
pitfalls include lack of top management buy-in, lack of clear objectives, etc.
The executive summary itemizes ten common pitfalls, the problem symptoms of
each, and some recommended treatments. [I]
-
Player, R. Steven and David E. Keys, Lessons From the ABM Battlefield:
Developing the Pilot, Journal of Cost Management, Sm95, pp. 20-35.
-
Second installment in a three article series. This article addresses problems
(mostly technical) that may arise in ABM implementations. Examples of the
pitfalls include too much detail collected, unavailability of detailed
operational data, etc. The executive summary itemizes ten common pitfalls, the
problem symptoms of each, and some recommended treatments. [I]
-
Player, R. Steven and David E. Keys, Lessons From the ABM Battlefield:
????????,
Journal of Cost Management, F95, p. ???.
-
Third installment in a three article series. Not published yet
-
Schiff, Jonathan B., How to Succeed at Activity-Based Cost Management,
Management Accounting, Vol. 73, March 1992, pp. 64-65.
-
The key to success at ABM is understanding and focusing on the needs of your
internal customer - the users of cost information. Several key points that are
considered crucial to the success of an ABM implementation are presented.
Several questions to consider before beginning an ABM implementation are also
presented. [I]
-
Sharman, Paul A., Activity-Based Management: A Growing Practice, CMA
Magazine, March 1993, pp. 17-22.
-
The author identifies nine steps to ABC implementation and provides
explanations and examples for each step. The time and resource commitments are
also explored for a typical pilot project (the author recommends implementation
as a pilot project no matter how broad the intended scope). A survey reveals
contrasts between ABC awareness and implementation in Canada, the UK and the
US. [I]
-
Coburn, Steve, Hugh Grove and Cynthia Fukami, Benchmarking with ABCM,
Management Accounting, January 1995, pp. 56-60.
-
The Marketing Resources Group of US WEST analyzed its accounting function with
ABC analysis. It then benchmarked its performance against a benchmarking
database obtained from an A. T. Kearney study that sampled 25% of the Fortune
100 and other world class companies. Based on the results, MRG decided to
redeploy accounting resources from routine processing to management decision
support products. In addition, other improvement opportunities within the
accounting function were identified. [I]
-
Gammell, Frances and C. J. McNair, Jumping the Growth Threshold Through
Activity-Based Cost Management, Management Accounting, September
1994, pp. 37-46.
-
ABM is implemented at The Original Bradford Soap Works, a medium-size
manufacturer of private label bar soap. The business had slowly outgrown its
existing management structure as it began operating "at capacity". Previously
sound management decisions failed to work in this new environment. Management
had plenty of data but very little was in a usable format. Once information
was captured in usable form, it showed that some products were clearly
unprofitable. A timeline (showing implementation steps) for the implementation
is presented. Much of the implementation difficulty was caused by the redesign
of the general ledger and supporting systems so that they integrated with the
ABC system. [I]
-
Hobdy, Terrence, Jeff Thomson and Paul Sharman, Activity-Based Management
at AT&T, Management Accounting, April 1994, pp. 35-39.
-
AT&T's breakup into smaller, more focused business units combined with the
advent of price-cap regulation made managing costs (rather than allocating
costs) critical. The authors document the process that AT&T used to
implement ABC and ABM. A year after implementation, the ABC model is used to
manage the center's operations: it measures associates' productivity in
completing certain activities and conducts benchmark studies among the
functional groups. The authors state that ABC has taught management to mange
the business proactively. [I]
-
Selto, Frank, H., Implementing Activity-Based Management, Journal of
Cost Management, Sm95, pp. 36-49.
-
The author explores four pilot projects undertaken at a large consumer products
company. The four projects were in the packaging, manufacturing, warehousing
and administrative services areas. The warehousing pilot project is
particularly interesting. The company identified activities, ranked these by
the amount of value added and identified cost drivers for allocation of each
activity's cost to the products. Exhibit 4 reflects this analysis. Exhibit 5
is an example of the activity analysis identifying hours spent on each
activity. [I]
-
Albright, Thomas L., Software for Activity-Based Management, Journal
of Cost Management, Sp95, pp. 6-25.
-
The author divides ABC software into two classes: 1) software developed by the
Big Six accounting firms to support their consulting engagements (Activa,
Profit Manager Plus 3 and TR/ACM) and 2) software designed to be installed and
implemented by the purchaser (CASSO, CMS-PC, Oros/Easy ABC Plus, HyperABC,
NetProphet II and DaCapo Process Manager). The author does not attempt to
conduct critical reviews of the packages. Rather, he tries to convey the
essential characteristics of each package as an introduction to the software
available. [I]
-
Borden, James P., Activity-Based Management Software, Journal of Cost
Management, Vol. 7, No. 4, W94, pp. 39-47.
-
The author reviews software packages designed for PC or networks. Mainframe
packages are not considered. The author divides the packages into two classes:
1) software developed by the Big Six accounting firms to support their
consulting engagements (Activa, ABCost Manager, Profit Manager Series and
TR/ACM) and 2) software sold by independent software vendors (CASSO, CMS-PC,
EasyABC, NetProphet, and Quote-a-Profit). The reviews are designed to provide
a brief overview of the available ABM software. [I]
-
Borden, James P., Software for Activity-Based Management, Journal of
Cost Management, Vol. 5, No., 3, F91, pp. 7-37.
-
The author reviews the following software packages: Profit Manager, CMS-PC,
Activa, CA-Compete!, EasyABC, TR/ACM, NetProphet, Prism and RK System. The
reviews are designed to provide a brief overview of the available ABC software.
[I]
-
Walkin, Lawrence, ABC - Key Players and Their Tools, Management
Accounting, February 1991, p. 18.
-
The author reviews five software packages for ABC: Activa, NetProphet, EasyABC,
a package from Integrated Cost Management Systems, Inc. and a package from KPMG
Peat Marwick. [B]
-
Lawson, Raef A., Beyond ABC: Process-Based Costing, Journal of Cost
Management, F94, pp. 33-43.
-
ABC systems, as commonly implemented, do not have the capability to improve
processes because they do not take into consideration the processes' ability to
satisfy customer needs. The author implores the audience not to use ABC models
as tools for which they were not designed: benchmarking, TQM and continuous
quality improvement. ABC systems should be incorporated into process-based
costing systems which do consider customer driven requirements. [A]
-
Greenwood, Thomas G. and James M. Reeve, Process Cost Management,
Journal of Cost Management, Vol. 7, No. 4, W94, pp. 4-19.
-
The authors tout the use of PCM for determining the cost of existing processes
(ABC in reverse). A model of spending simulation (working backwards from cost
objects to activities to resources) is useful for sensitivity analysis
performed for changes in processes. The authors suggest using the spending
simulation model for capital budgeting, operational decision making, process
and product engineering and kaizen operator process improvement. [A]
-
Beischel, Mark E., Improving Production with Process Value Analysis,
Journal of Accountancy, Vol. 170, September 1990, pp. 53-55.
-
Process value analysis is the foundation for other cost analysis tools,
including ABC. A seven step plan for conducting PVA is presented. [I]
-
Johnson, H. Thomas, Activity Management: Reviewing the Past and Future of
Cost Management, Journal of Cost Management, Vol. 3, No. 4, W90, pp.
4-7.
-
The development of cost management is reviewed and the future is explored. The
author argues that the path to global competitiveness lies in activity
management - identifying non-value-added activities and eliminating these.
Some of the problems related to elimination of non-value-added activities are
examined. Also discussed is how ABC information can help eliminate
non-value-added activities. [I]
-
Ostrenga, Michael R., Activities: The Focal Point of Total Cost
Management, Management Accounting, February 1990, pp. 42-49.
-
Process value analysis is the initial building block of total cost management.
TCM is a business philosophy of managing all company resources and the
activities that consume these resources. ABC is a way of identifying
activities and the value the add or do not add to the business. [I]
-
Ostrenga, Michael R. and Frank R. Probst, Process Value Analysis: The
Missing Link in Cost Management, Journal of Cost Management, Vol. 6,
No. 3, F92, pp. 4-13.
-
Process value analysis is a methodology for reducing costs and improving
processes by identifying resource consumption within a process and the
underlying cause of the cost. PVA addresses three questions: 1) What do our
products actually cost?, 2) Why do they cost that much?, and 3) What can be
done to reduce the cost? The authors provide an illustration showing the
"linkage" between PVA and ABC. [I]
The views expressed in this document are those of the authors and do not reflect the official policy or position of the Department of Defense or the U.S. Government.
To Cost Technologies
Originated on 05/02/96
Curator Al Motley