CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The availability and relevance of accounting information underlies many business decisions. In recent years, traditional volume-based cost models have been the subject of much criticism, especially in relation to the accuracy of product costing. The popularity of activity-based costing (ABC) in the mid-1980s and the subsequent evolution (Bromwich and Bhimani 1989) vs. revolution (Johnson and Kaplan 1987) debate has enriched both the management accounting literature and practice. Research to date, however, has concentrated on assessing the integrity of the ABC process (for example, Foster and Gupta 1990; Noreen 1991; Roth and Borthick 1991; Banker and Johnston 1993; McGowan 1998; Maher and Marais 1998); examining its application and implementation in a single case study situation (for example, Cooper and Kaplan 1999); assessing the degree of interest and adoption (for example, Nicholls 1992; Armitage and Nicholson 1993; Innes and Mitchell 1995, 1997; Malmi 1999); and factors impacting the success of implement nation (for example, Anderson 1995; Shields 1995; Foster and Swenson 1997; Anderson and Young 1999).
Despite the limited number of confirmed non-adopters in our sample, we were able to match 37 of the 47 activity base costing firms within a reasonable level of accuracy. The structure of the paper is as follows. Section two presents a brief review of the ABC literature and a summary of the attributes and characteristics of ABC, as interpreted in this study. It also sets out the hypothesis and the theoretical model underpinning this study. Section three documents the research method and data source used. Section four presents the research findings. Section five summarizes the results of the robustness tests. The paper concludes in section six with a summary and interpretation of the findings, as well as a discussion of the limitations of the study. Organizations have witnessed tremendous change in the operating environment over the last 50 to 60 years (Kaplan, 1991). Manufacturing lines handled small product mixes, competition came primarily from domestic rivalries, and technology was prohibitively expensive in the past. Today, manufacturing lines have the capacity to produce thousands of different products, international competition impacts most businesses, and technology has replaced labor in the market. The operating environment has become dynamic and complex due to rapid changes in technology that have accelerated globalization and worldwide competition (Govindarajan & Gupta, 2001). The current economic and financial meltdown in the United States has created a fragile business world. Firms must adopt strategic initiatives to align company resources, gain a competitive advantage, and improve organizational performance. Traditional accounting methods fall short in providing management with the strategic information needed in today’s operating environment (Brimson & Antos, 1994; Euske & Vercio, 2007; Kaplan, 2006; Kocakulah, 2007; Lea, 2007; Raab & Mayer, 2007). Innovative managerial accounting techniques can assist in the development and implementation of the strategic management process (Anthony & Govindarajan, 1998; Brewer, 2008; Chenhall, 2003; Frezatti, 2007; Herath, 2007; “Linking Strategy to Operations,” 2008; Shank & Govindarajan, 1993; Sharman, 2008). Managerial accounting systems such as activity-based costing (ABC) can play an important role in bridging the information gap and supporting management decision making (Brimson, 1991; “Linking Strategy to Operations,” 2008; Maiga & Jacobs, 2006). ABC can offer fast, reliable, and strategic information for decision making so that management can react quickly to the market, competition, and customer demands.
Leave a Reply
You must be logged in to post a comment.