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abc

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Aleksandrs Spelkovs

on 9 January 2014

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Transcript of abc

Activity Based Approaches have addressed fully the shortcomings of management accounting as highlighted by Johnson & Kaplan (1987). All companies should adopt these approaches

ALEKSANDRS SPELKOVS
SHUO CHEN Shortcomings of management accounting
Activity Based Approaches
Advantages of ABA
Disadvantages of ABA
Conclusion Structure Activity Based Approaches Church believed that costing system should identify “the connection of expenditure of all assets with the items of output on which they are incident to determine the resources required for each product” (Steven, 2009) Alexander Hamilton Church was the first writer to write about method similar to ABC While it is acknowledged as a big step into modernity, ABC has its foundations in the past. Types of Activity Based Approaches Tarvido, 2009
Focused on activities performed to provide a product or services

Determines costs of performed activities

Uses different types of cost drivers to assign costs to products or services (number of customer orders) ABC ABM: action, based on activity driver analysis, that increase efficiency , lower costs and improve asset utilisation Types of Activity Based Approaches ABC: An approach to the costing and monitoring of activities which involves tracing resource consumption and costing final outputs. Resources are assigned to activities, and activities to cost objects based on consumption estimates. The latter utilise cost drivers to attach activity costs to outputs Types of Activity Based Approaches ( Hughes, 2005)

Change structure of activities

reduce costs of activities

Retain activities with high value Activity Based Management ABB: combines a number of well-proven management practices drawn mainly from priority base budgeting and total quality, together with the activity-based cost (ABC) management concepts Types of Activity Based Approaches Wilhelmi, 1995 Planning process linked to organization’s startegic plans
Use activity analysis
Can identify cost improvements
Integration with activity planning and accounting
Establishment of performance targets for control
analysis of discretionary spending options and priority ranking Activity Based Budgeting ABC uncovers true costs of business (Lin, 2001)
Can quantify problems and identify opportunities (Hooshang, 2004)
ABC-ABM allows to reduce resources require through a more efficient performing of activities (Tarvido, 2009)
ABM methods have a broad range of uses- process analysis, strategy support, time based accounting, monitoring wastage, quality and productivity management (Popesko, 2010)
ABC/M can improve operational performance and business strategy (Roztocki, 2010) Advantages of Activity Based Approaches (Stapleton, 2004) It is resource-consuming activity
It is time consuming due to the length procedures it entails
It is not appropriate for every firm
It is a labor-intensive operation
The benefits from implementation are not always commensurate with the costs incurred
It may cause poor labor relations in the firm
It is not appropriate for every firm, firms with low level of overheads will not benefit Disadvantage of Activity Based Approaches Johnson and Kaplan,1987 Information is produced too late
Too aggregated
Too distorted to be relevant
Narrow focus on producing monthly earnings reports
Income figure fails to measure actual increase or decrease in economic value Shortcomings of management accounting Conclusion Any questions Reference Ashford, C.C., 2011. Activity-Based Costing System in the Service Sector: A Strategic Approach for Enhancing Managerial Decision Making and Competitiveness. International Journal of Business and Management, 6(11).
Dalci, I., Tanis, V. and Kosak, L., 2009. Customer profitability analysis with time-driven activity-based costing: a case study in a hotel. International Journal of Contemporary Hospitality Management. Vol. 22(5), pp.609-637.
Edwards, S., 2008. Activity Based Costing. CIMA
Hooshang, M.B., 2004. Gaining and sustaining competitive advantage with activity based cost management system. Industrial Management + Data Systems, 104(5), pp. 377-383. Hughes, A., 2005. ABC/ABM - activity-based costing and activity-based management: A profitability model for SMEs manufacturing clothing and textiles in the UK. Journal of Fashion Marketing and Management, 9(1), pp. 8-19.
Johnson, H.T. and Kaplan, R.S., 1987. The rise and fall of management accounting, Management Accounting, 68(7).
Kaplan, R. and Anderson, S.R. (2004), Time-driven activity based costing, Harvard Business Review, 82(11), pp. 131-8.
Lin, B., Collins, J. and Su, R.K., 2001. Supply chain costing: An activity-based perspective. International Journal of Physical Distribution & Logistics Management, 31(9), pp. 702-713. Mitchell, F., 1994, A commentary on the applications of activity-based costing. Management Accounting Research, 5(3/4), pp. 261 – 277.
Morgan, M.J., 1993. Testing activity-based costing relevance: Pharmaceutical products limited - A case study. Management Decision, 31(3), pp. 8-8.
Popesko, B., 2010. Activity-Based Costing Application Methodology for Manufacturing Industries. E+M Ekonomie a Management, 1, pp. 103-114.
Roztocki, N., 2010. Activity-Based Management for Electronic Commerce: A Structured Implementation Procedure. Journal of Theoretical and Applied Electronic Commerce Research, 5(1), pp. 1-10. Roztocki, N. and Needy, K., 1999. Integrating Activity-based Costing and Economic Value Added in Manufacturing, Engineering Management Journal, 11(2).
Stapleton, D., Pati, S., Beach, E. and Julmanichoti, P., 2004. Activity-based costing for logistics and marketing. Business Process Management Journal, 10(5), pp. 584-597.
Steven, G. ,2009. Performance operations. CIMA
Tarvido, G. and Montezemolo, G.C., 2009. Using Activity- Based Management to Achieve Excellence. Journal of Financial Management & Analysis, 22(1), pp. 67-84.
Wilhelmi, M. and Kleiner, B.H., 1995. New developments in budgeting. Management Research News, 18(3-5), pp. 78-78. ABC uncovers true costs of business (Lin, 2001)
Can quantify problems and identify opportunities (Hooshang, 2004)
ABC-ABM allows to reduce resources require through a more efficient performing of activities (Tarvido, 2009)
ABM methods have a broad range of uses- process analysis, strategy support, time based accounting, monitoring wastage, quality and productivity management (Popesko, 2010)
ABC/M can improve operational performance business strategy (Roztocki, 2010) Advantages of Activity Based Approaches ABC is not a magic formula to success (Morgan, 1993) and is not cure for all (Mitchell, 1994)
Does no identify economic value added creators (Roztocki and Needy, 1999)
Might take too much time to implement (Kaplan and Anderson, 2004)
Problems to deal with activities that has more than one subtask (Dalci, Tanis and Kosak, 2009)
More expensive to maintain (Popesko, 2011 and Kaplan and Anderson, 2004)
Cannot reliably measure the short term impact of decisions (Ashford, 2011) Disadvantage of Activity Based Approaches ABC
ABM
ABB We believe that ABA have addressed to some extent the shortcomings of management accounting. However, we would not recommend all companies to adopt these approaches. Because in some cases costs of implementing might outweigh benefits. Edwards, 2008 Edwards, 2008 Wilhelmi, 1995
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