|
Page 3 of 7
Survey and Research Data
ABC and large organisations
In a CIMA survey concerning the use of costing systems by 187 large UK organisations respondents indicated the following:
- Commonly a single database was used for cost information. (Only 12 respondents used a separate database for stock valuation);
- Most companies used full costing systems involving both direct and indirect costs; only 15% assigned direct costs only;
- The level of indirect costs for each organisation varied from below 10% to more than 50% of total costs;
- Typically organisations costed more than 200 items annually;
- Some 50% attempted to distinguish between the different categories of indirect costs;
- 80% analysed profits gained from products, services, components, customers, locations etc. on a monthly basis;
- 80% assigned facility-sustaining costs within their cost database;
- 25% said that they used ABC;
- ABC was used mainly by large organisations with adoption rates of 45% for the largest organisations. (Drury & Tayles, 2001)
ABC & ABM benefits rated highly but used less than expected
A 2001 survey concerning cost management practices received responses from 195 USA Cost Management Group members (75% from manufacturing industries and 25% from non-manufacturing firms). The survey results showed that only 24% used ABC and 16% used ABM. Of those, only 31.8% integrated ABC/M into their primary financial system. However the benefits obtained from ABC/M use were rated at 4.57 out of 7.0 on average. Manufacturing firms rated ABC (not including ABM) at 5.03 out of 7.0. (Krumwiede & Leikam, 2002)
Activity Based Costing Studies
A study of 205 large corporations found a statistically significant robust relationship between ABC and financial performance as measured by Return on Investment (ROI). The study also found further synergies when ABC was used in conjunction with other initiatives such as Just-In-Time Management (JIT).
In relation to ABC initiatives and internal organisational sponsorship, a survey of 385 corporations using ABC found that 33% of sponsors were at the director level or higher. 53% of ABC initiatives were sponsored by finance or accounting, with operations, engineering or other corporate functional areas responsible for sponsoring the remaining 47%.
In another survey 33% of organisations reported that senior management buy-in, resource constraints and time constraints were the biggest obstacles to the deployment of ABC. (Rafiq & Garg, 2002)
ABC benefits versus VBC
A field study of three small US manufacturing firms - each involved in a highly competitive business, with relatively high overhead costs, and cost objects (products and jobs) that varied in volume and complexity - found that their traditional Volume Based Costing (VBC) systems were unlikely to deliver the accurate cost information needed for price setting and decision-making. This was particularly true in cases where product diversity, high overhead costs, and a skewed customer distribution existed. The study concluded that ABC was a valuable management support tool for small manufacturers. ABC analyses were performed for each company and the ABC product costs were compared to the previous VBC costs. The study revealed that:
- The calculated costs of very low revenue/low volume batches were generally found to be lower under VBC the ABC. This verified the belief that VBC systems tended to underestimate costs for small jobs which consumed more overhead resources per unit than higher-volume jobs.
- The costs for very large jobs also tended to be underestimated by VBC systems compared to ABC. For all three companies profitability began to decrease at certain job sizes and this was unexpected by managers who believed that the larger-sized jobs were the most profitable based on the previous product cost information provided by VBC systems.
- Under VBC managers had preferred one big job to two or three medium-size jobs. Investigation revealed that large jobs often consumed an over-proportional amount of overhead resources and this suggested that some jobs were too large and resource demanding to be profitable for each of the companies studied.
- The complete business and manufacturing processes of a small manufacturer can be comprehensively described under ABC using a manageably small number of cost activities. (Needy et al, 2003)
|
Home 
Management Brief Reports