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  • Posted By: malcom222
  • Date Posted: 07/19/2011
  • Category: Business
  • Words: 3258
  • Pages: 14
  • Views: 963
  • Rank: 234

ACTIVITY-BASED COSTING: BEYOND THE SMOKE AND MIRRORS

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ACTIVITY-BASED COSTING: BEYOND THE SMOKE AND MIRRORS

Summary The business environment in the 1990s is markedly different from that of the past when conventional cost accounting procedures were established. Activity-based costing (ABC), pioneered in the late 1980s, offered a new costing approach consistent with the changed environment. However, ABC did not diffuse rapidly into the business community. This article demonstrates why adopting ABC is important by documenting the potential of ABC in supporting contemporary managerial decision making. Introduction Everything happens faster in business today. Even new management tools (some say fads) follow a meteoric path. For example, the ink on new articles describing activity-based costing (ABC) was hardly dry before consulting firms had integrated it into their slick brochures and presentations. All they needed was someone to use it. To illustrate, Romano identified only 110 installations by August 1990, nearly two years after the procedure was developed, with 77 percent of these in two major firms [13]. Perhaps this phase, in the process of introducing the new procedure, could be called the period of wild over-promise. However, even by the mid-1990s, ABC has not spread widely throughout the industry and even in large firms, widespread success of ABC is not obvious [16]. According to Ness and Cucuzza, thousands of companies have adopted or explored the feasibility of adopting ABC. However, (they) estimate that no more than ten percent of companies now use activity-based management in a significant number of their operations [11]. A survey conducted by the Institute of Management Accountants' cost management group found that only 29 percent of companies used ABC instead of traditional systems, but this was an increase from 25 percent in the previous year [10]. Among reasons cited for low adoption were employee resistance and major organizational changes required with the use of ABC [11]. Some trace the source of slow ...

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