Abc on Plant Performance

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Accounting, Organizations and Society 33 (2008) 1–19 www.elsevier.com/locate/aos

The role of manufacturing practices in mediating the impact of activity-based costing on plant performance
Rajiv D. Banker a, Indranil R. Bardhan b b,* ,

Tai-Yuan Chen

c

a Fox School of Business, Temple University, 1810 N. 13th Street, Philadelphia, PA 19122, USA The University of Texas at Dallas, School of Management, SM 41, 2601 N. Floyd Road, Richardson, TX 75083-0688, USA c School of Business and Management, Hong Kong University of Science and Technology, Clearwater Bay, Kowloon, Hong Kong, China

Abstract We study the impact of activity-based costing (ABC) on adoption of world-class manufacturing (WCM) practices and plant performance. In contrast to earlier research that estimates the direct impact of ABC on plant performance, we develop an alternative research model to study the role of world-class manufacturing practices as a mediator of the impact of ABC. Analysis of data from a large cross-sectional sample of US manufacturing plants indicates that ABC has no significant direct impact on plant performance, as measured by improvements in unit manufacturing costs, cycle time, and product quality. We find, however, that WCM practices completely mediate the positive impact of ABC on plant performance, and thus advanced manufacturing capabilities represent a critical missing link in understanding the overall impact of ABC. Our results provide a different conceptual lens to evaluate the relationship between ABC adoption and plant performance, and suggest that ABC adoption by itself does not improve plant performance. Ó 2006 Elsevier Ltd. All rights reserved.

Introduction Activity-based costing (ABC) was designed with the objective of providing managers with accurate activity-based cost information by using cost drivers to assign activity costs to products
* Corresponding author. Tel.: [phone]; fax: [phone]

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