Activity-based-costing (ABC) in practice - the factors affecting the Essay

Activity-based-costing (ABC) in practice - the factors affecting the successful implementation of an ABC system - Essay Example ABC also provides useful information about the cost of the product which is helpful in decision making (Weetman, 2012, pp. 85-88). According to Drury, ABC method can be used for various cost management applications like customer profitability analysis, business process management and value chain analysis. According to some other management accounting literature ABC can be divided in four genres like contingency research, basic research, critical research and consulting. It can be seen that type of the contingency research is one of the most important development on the topic of ABC. However, some countries have given more attention to the contingency based research. Johnson (1990) has described that ABC, ROI and Variance Analysis are the most important concept of management accounting in 20th century. According to Mitchell (1994), ABC system got high profile popularity by the work of Kaplan and Cooper. Bhimani and Piggott (1992) have stated that Activity Based Costing has many important benefits over other costing systems like it increases the cost accuracy of product and provides more comprehensive information about cost incurred to ensure better performance. It also provides more accurate data which helps the managers to take better decisions and increase efficiency for sensitivity analysis. It is also considered as a valuable model which adds value to the organizational activities and transactions. According to some research studies, respondents told that they are satisfied and they think that ABC provides more accurate costing result than the traditional method of costing. These studies have also stated other benefits like accurate profitab ility analysis for customers, positive behavioral effect on employees, accurate insight into cost behavior and causation and better measurement of performances. According to Mitchell and Innes (1991) have stated that Activity Based Costing gives more relevant costs