Essay on Activity based costing in manufacturing

7440 Words Nov 8th, 2013 30 Pages
Activity based costing in manufacturing: two case studies on implementation
The Authors
Amrik S. Sohal, Department of Management, Monash University, Australia
Walter W.C. Chung, Department of Manufacturing Engineering, Hong Kong Polytechnic University, Hong Kong
The authors are grateful to the Financial Controller at MelCo and to Mr Richard Siu, now Deputy General Manager of Ciba Specialty Chemicals (China) Ltd. They are also thankful to the Hong Kong Government Industry Department and The Hong Kong Polytechnic University (PolyU) for providing the funding to complete this paper and to Jimmy Ho who worked as a Research Assistant/Student on the ABC project at PolyU.
This paper presents two case studies
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Aids identification and understanding of cost behaviour and thus has the potential to improve cost estimation.
Provides a more logical, acceptable and comprehensive basis for costing work.
This paper describes the adoption of ABC in two organisations and identifies the factors that are critical to implementation. Implementation is the most difficult stage in adopting new management philosophies and techniques. It is hoped that the experiences of the two companies described in this paper provide useful lessons for managers considering the adoption of ABC systems.
The need for a new approach to cost management and the design and operation of an ABC system have received considerable attention from accounting academics and researchers and it is not intended to cover this here in any detail. The Appendix at the end of this paper provides a brief summary of the need for a new approach and the design and operation of an ABC system.
Extent of implementation of ABC systems
After almost ten years since it was developed, ABC still has a relatively low take-up as shown by the results of a number of surveys conducted in North America, the United Kingdom and Australia.
A survey conducted in 1990 on behalf of the British Chartered Institute of Management Accountants (CIMA) ABC Working Group involving organisations in both the manufacturing and financial services sectors found that only 6 per cent of the responding firms had commenced implementation and 9 per cent

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