Activity based costing in manufacturing
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
Acknowledgements
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.
Abstract
This paper presents two case studies on the implementation of activity based costing (ABC). The first case is a company based in Melbourne, Australia, which manufactures engineering components. The second case study is a specialty chemicals company based in Hong Kong. The case studies discuss the introduction of ABC and the benefits and problems experienced during implementation in each company. Based on the experiences of the two companies, factors critical to successful implementation of ABC systems are identified.
Article Type:
Case study
Keyword(s):
Activity-based costing; Australia; Hong Kong; Implementation.
Journal:
Integrated Manufacturing Systems
Volume:
9
Number:
3
Year:
1998 pp: 137-147
Copyright ©
MCB UP Ltd
ISSN:
0957-6061
Introduction
Manufacturing organisations of today are much more complex than those of the 1960s and earlier years. To manage today’s manufacturing organisations managers require information which is relevant, accurate and readily available. Information is needed to formulate and operationalise functional strategies and to make decisions on product mix and production costs. Although production systems have changed to meet the changing needs of the marketplace, in many organisations the internal management
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
Acknowledgements
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.
Abstract
This paper presents two case studies on the implementation of activity based costing (ABC). The first case is a company based in Melbourne, Australia, which manufactures engineering components. The second case study is a specialty chemicals company based in Hong Kong. The case studies discuss the introduction of ABC and the benefits and problems experienced during implementation in each company. Based on the experiences of the two companies, factors critical to successful implementation of ABC systems are identified.
Article Type:
Case study
Keyword(s):
Activity-based costing; Australia; Hong Kong; Implementation.
Journal:
Integrated Manufacturing Systems
Volume:
9
Number:
3
Year:
1998 pp: 137-147
Copyright ©
MCB UP Ltd
ISSN:
0957-6061
Introduction
Manufacturing organisations of today are much more complex than those of the 1960s and earlier years. To manage today’s manufacturing organisations managers require information which is relevant, accurate and readily available. Information is needed to formulate and operationalise functional strategies and to make decisions on product mix and production costs. Although production systems have changed to meet the changing needs of the marketplace, in many organisations the internal management
References: Cobb, I., Innes, J., Mitchell, F. (1992), Activity Based Costing - Problems in Practice, Chartered Institute of Management Accountants, London, . [Manual request] [Infotrieve] Cooper, R. (1988), "The rise of activity based costing - part one; what is an activity based cost system", Journal of Cost Management, pp.45-54. [Manual request] [Infotrieve] Corrigan, J. (1996), "ABC not easy in Australia: survey", Australian Accountant, pp.51-2. [Manual request] [Infotrieve] Chung, W.W.C., Lee, W.B., Chik, S.K.O. (1997), "Technology transfer at the Hong Kong Polytechnic University", Proceedings of the 13th Annual Hawaii International Conference on Systems Science, Vol. III pp.96-105. [Manual request] [Infotrieve] Drury, C. (1990), "Product costing in the 1990s", Accountancy, pp.122-6. [Manual request] [Infotrieve] Innes, J., Mitchell, F. (1990), Activity Based Costing: A Review with Case Studies, Chartered Institute of Management Accountants, London, . [Manual request] [Infotrieve] Innes, J., Mitchell, F. (1991), Activity Based Costing Management: A Case Study of Development and Implementation, Chartered Institute of Management Accountants, London., . [Manual request] [Infotrieve] Innes, J., Mitchell, F. (1991a), "ABC: a survey of CIMA members", Management Accounting, pp.28-30. [Manual request] [Infotrieve] Johnson, H.T, Kaplan, R.S. (1987), Relevance Lost: The Rise and Fall of Management Accounting, Harvard Business School Press., . [Manual request] [Infotrieve] Wood, C. (1996), "Manufacturers reluctant to count the real costs", Business Review Weekly, August, pp.94-5. [Manual request] [Infotrieve] Table AI, taken from Innes and Mitchell (1990), illustrates and contrasts this ABC approach with the conventional approach. Operating an ABC system involves two steps (Innes and Mitchell, 1990): overhead cost to activity based cost pools