The Activity-Based Costing Method- Development and Applications
The Activity-Based Costing Method: Development and Applications
Gregory Wegmann*
This paper analyzes the management accounting applications, which try to improve the Activity-Based Costing (ABC) method. First, the paper describes them using the Strategic Management Accounting (SMA) stream. Then it presents the main features of these applications. Second, the paper examines in detail two of these features: the widening of the analysis perimeter and the relevant level of details to analyze the costs. Subsequently, it analyzes several proposals, such as Customer-Driven ABC, Interorganizational Cost Management (IOCM), Resource Consumption Accounting (RCA) and Time-Driven ABC (TDABC). Finally, it describes an experience observed in the IT supply European division of an international group. This group experiments, what we call an ‘Activity-Based Supply Chain Costing Tool’ to manage its interorganizational relations.
Introduction
The Activity-Based Costing (ABC) method is the most well-known management accounting innovation in last 20 years. Since the early stages of this method, the Anglo-Saxon scholars have tried to develop specific applications and extensions. In France, the ABC method and its main managerial development, Activity-Based Management (ABM), are quite famous.1 But the numerous developments based on the ABC method are neither very well-known nor discussed. The ABC method was designed in the US during the 1980s (Cooper and Kaplan, 1988).2 It is a refined cost system which enables classifying more costs as direct, to expend the number of indirect cost pools and to identify cost drivers. ABC favors better cost allocation using smaller cost pools called activities. Using cost drivers, the costs of these activities are the basis for assigning costs to other cost objects such as products or services. Since, the work of Johnson and Kaplan (1987) on Management Accounting, the Anglo-Saxon scholars have been very dynamic. The majority of management accounting
Gregory Wegmann*
This paper analyzes the management accounting applications, which try to improve the Activity-Based Costing (ABC) method. First, the paper describes them using the Strategic Management Accounting (SMA) stream. Then it presents the main features of these applications. Second, the paper examines in detail two of these features: the widening of the analysis perimeter and the relevant level of details to analyze the costs. Subsequently, it analyzes several proposals, such as Customer-Driven ABC, Interorganizational Cost Management (IOCM), Resource Consumption Accounting (RCA) and Time-Driven ABC (TDABC). Finally, it describes an experience observed in the IT supply European division of an international group. This group experiments, what we call an ‘Activity-Based Supply Chain Costing Tool’ to manage its interorganizational relations.
Introduction
The Activity-Based Costing (ABC) method is the most well-known management accounting innovation in last 20 years. Since the early stages of this method, the Anglo-Saxon scholars have tried to develop specific applications and extensions. In France, the ABC method and its main managerial development, Activity-Based Management (ABM), are quite famous.1 But the numerous developments based on the ABC method are neither very well-known nor discussed. The ABC method was designed in the US during the 1980s (Cooper and Kaplan, 1988).2 It is a refined cost system which enables classifying more costs as direct, to expend the number of indirect cost pools and to identify cost drivers. ABC favors better cost allocation using smaller cost pools called activities. Using cost drivers, the costs of these activities are the basis for assigning costs to other cost objects such as products or services. Since, the work of Johnson and Kaplan (1987) on Management Accounting, the Anglo-Saxon scholars have been very dynamic. The majority of management accounting
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