The implementation of Activity Based Costing Essay

Activity-Based Costing system is considered as a degree of activity direction which divided to three degrees, activity analysis, activity cost analysis, and ABC ( Gosselin, 1997 ) .

Activity-Based Costing is a costing technique that traces costs ( indirect costs ) to different activity by utilizing relevant cost drivers and so allocates costs to the merchandise or services based on the degree of activities consumed by the merchandises produced or services performed, Kiani, and Sangeladji ( 2003 ) . There are two phases in ABC theoretical account Cooper ( 1987 ) foremost, costs are assigned to cost pools within an activity centre based on a cost driver. Second, costs are allocated from the cost pools to a merchandise based on the merchandise ‘s ingestion of the activities. This measure is similar to traditional costing attack but in traditional costing attack there is no consideration for non-volume related features. Advocates of ABC theoretical accounts strongly believe in the ability of the theoretical accounts to better the overall profitableness of organisations by leting direction to apportion cost decently, to cut most of not-value-added activities, and to cut down clip and costs of running the operational activities. The major grounds of following ABC are: the traditional costing system does non supply non-finance measuring, inaccurate bing system, bing system should promote betterments, and overhead cost is higher than labour cost, Gunasekaran and Singh ( 1999 ) . The development and publicity of ABC have been stimulated and mostly influenced by Cooper Kaplan 1991, Gunasekaran and Sarhadi ( 1998 ) .Therefore, ABC has been deriving credence in an increasing figure of organisations runing from fabricating to retailing, and from net income oriented concerns to authorities establishments Gunasekaran and Singh ( 1999 ) .

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The a acceptance of ABC among these sectors of concerns has been studied from assorted positions for rather some clip in many states that showed the degree of acceptance is still considered low.1.2 Problem StatementIndustry sector ( fabricating companies ) in Yemen generates about 8 % of gross domestic production ( GDP ) . Therefore, Yemeni authorities gives more considerations to this sector because it ‘s become one of import beginning to its resorts.

To assist these companies to better their fight by enabling them to do determinations based on a better apprehension of their cost construction, they need to follow ABC. This advantage will do all fabrication companies ( Yemeni ) working to follow this technique. However, the existent province of acceptance this technique among Yemeni companies needs to invistegate.

Brown, Booth, and Giacobbe, ( 2004 ) no survey has been able to set up a set of important factors that influence the acceptance of ABC. Therefore, the factors that affect ABC acceptance in anterior surveies may impact otherwise in Yemeni fabrication houses since Alsaeed ( 2005 ) in Saudi found negative relationship between ABC and merchandise diverseness.1.3 Research QuestionsWhat is the acceptance position of ABC among Yemeni fabricating companies?What are the factures which influence that acceptance?What are the obstructions that faced ABC acceptance among Yemeni fabricating companies?1.4 Research AimsTo find the acceptance position of ABC system among fabricating organisations in Yemen, therefore set uping a foundation for future research on ABC acceptance and execution in this part.To look into whether certain factors ( Top Management, Non-Accounting, organisational size, IT, and merchandise diverseness ) have any influence on theacceptance of ABC in fabricating organisations in Yemen, therefore adding to thebing pool of research in this field from the position of a 3rd universe state.

To find the factors that prevents ABC acceptance among Yemeni fabrication companies.1.5 Significance of StudyABC has been studied from assorted positions for rather some clip in many states. Even though surveies have shown that the acceptance of ABC benefits the organisations, its degree of acceptance is unknown for manufactory Yemeni companies. Many organisations hang on to the traditional cost accounting methods in covering with overhead costs. This survey attempts to look into the position of ABC acceptance among fabricating organisations in Yemen.

Furthermore, since there is exclusive survey about ABC execution in Middle East ( 3rd universe states ) which conducted by Alsaeed ( 2005 ) in Saudi, and no survey has been able to set up a set of important factors that influence the acceptance of ABC ( Brown, Booth, and Giacobbe, 2004 ) , this survey will add part to ABC acceptance ‘s literature in that part.The present paper is organized into five chapters. Second chapter discusses the literature reappraisal of ABC execution. The research method is explained in the 3rd chapter. Findingss and treatments will be in forth chapter before decision and restriction in last chapter.Chapter TWO2.0 LITRETURE REVIEW2.1 Implementation rate of ABCABC has helped many fabrication and service organisations to better their fight by enabling them to do determinations based on a better apprehension of their cost construction Raz and Elnathan ( 1999 ) .

However, if ABC does so, why more houses is non using it. Kaplan suggested four accounts for the direction accounting slowdown to following ABC: the deficiency of equal function theoretical account, the prevalence of computer-based accounting system, the accent on fiscal accounting, and the top direction does non stress the betterment of the relevancy of their direction accounting system Gosselin ( 1997 ) .Therefore, several surveies have been done to analyze the acceptance of ABC in different states such as US by Kiani and Sangeladji ( 2003 ) , UK by Innes ( 2000 ) , New Zealand by Cotton and Brown ( 2003 ) , Ireland by Pierce and Brown ( 2004 ) , and Saudi Arabia by Alsaeed ( 2005 ) .All this researches seek to set up respondents ‘ perceptual experiences sing acceptance, use and success or ABC/M systems. The consequence of these surveies shows in table 1.

ABC in the United states

First, in the US, the acceptance of ABC rate and rejected rate were really high when it compared with it similar survey. The ruling features of take parting companies are ; these companies engaged in assortment of operations including fabrication every bit good as customized service ( 27 % ) with large-batch size ( 29 % ) , companies that hire over 5000 employees were 75.6 % and study gross revenues of over one billion dollars were 91.

8 % , and companies that operate in a high competitory environment with a short production life rhythm and a demand to modify their merchandises within three old ages. This survey specified eight of import factors to find the importance of utilizing ABC and the grounds of non execution, after utilizing 5-point linkert graduated table the consequence got mean 3.82 out of 5 to importance and the deficiency of support by top direction was the most of import factor for the companies non implementing ABC, it is the same ground for those who reject ABC. The intents of following ABC are, to better the overall profitableness, to cut down fabrication cost, to develop more profitable merchandises.

ABC in the UK

Another major survey in this filed is in the UK, with respects to ABC acceptance position, no important addition of ABC adapters, current considerations, and rejecters rates. However, the rate of those who have no consideration to ABC is significantly big.

The acceptance of ABC in the UK has positive relationship with fiscal sector and big companies. In extra, there are different intents of usage of ABC indicates respondent ‘s positions of the of import and success for each type of application, and there is relationship between single users and the overall success enchantress was important with new merchandise or services design and undistinguished with budget. The overall success of ABC was rated on norm at 3.

9 from 5-point graduated table in the same mode with the US survey. Furthermore, top direction support has important impact on the success evaluation of ABC. Finally in contrast with the US consequence, the chief grounds of those who reject were, its deficiency of relevancy their concern, and its sensed demonstrative and proficient complexness.

ABC in New Zealand

Third, in the New Zealand, it was an exact reproduction of the study instrument that used by Innes and Mitchell, ( 2000 ) in the UK It was found that acceptance rates were loosely similar, with execution rates for New Zealand companies being somewhat lower than those reported in the UK.

Fewer companies were found to be sing ABC and fewer companies besides had rejected ABC after appraisal. A farther difference was found sing acceptance rates among company sectors, with a higher rate of acceptance in fabrication and non-manufacturing sectors and a lower rate in the fiscal sector.

ABC in Ireland

Forth in Ireland, this survey was repeated the UK survey, in contrast with the UK study the consequences show higher degrees of ABC acceptance among fabricating companies than finance companies. Adoption rates based on company size and with big figure of employees ( consistent with US consequence ) are more likely to follow ABC. With respects to utilize of ABC, use and success are really strongly linearly related and systematically high overall evaluations for users of ABC systems. However, consistent with anterior surveies, Lack of support top direction and the complexness of ABC are the chief grounds for those who sing ABC but reject it. Furthermore, No important difference in the merchandise costs on an ABC footing vs. current methods is the ground for those how reject ABC.

Consistent with UK and New Zealand findings, high success evaluations were awarded for client profitableness analysis and product/service pricing.

ABC in Malaysia

The execution and those who non considered ABC rates ( 36.11 % and 48 % ) are quiet high comparison with other surveies both come in the 2nd phase after the US and Ireland severally.

The rejecting rate 3 % of ABC among Malayan fabrication is the lowest. The survey found the chief factors that positively associated with ABC are determination utility of cost information, organisation support, information engineering, and public presentation measuring ( internal steps ) . Form the other manus, it found negative relation for potency of cost deformation, and public presentation measuring ( larning and growing ) and ABC acceptance.

ABC in Saudi

In Saudi Arabia, found significantly addition of the rate of those who presently following ABC and those who ne’er considered. Likely with anterior surveies, there is positive relationship between ABC acceptances with the size of houses, furthermore this survey found positive relationship between ABC acceptance and diverseness of merchandises. Consistent with the UK and Ireland findings, the houses following ABC in order to step clients ‘ profitableness inducement and to mensurate cost accurately.

Improbable with the US consequences, the chief troubles that may confront ABC adoptive parents is inadequacy of equal expertness and determine cost driver ( proficient issue ) more than top direction supports ( organisational issue ) . With respects of the usage of ABC the consequence found similar with anterior surveies that utilizing of ABC enable houses to mensurate cost accurately and these houses have been successful in utilizing ABC to pare down costs. On the other manus, the grounds for those who rejected were ABC unconfirmed to the houses ‘ operations and adequateness of current system being used.2.

2 Factors associating to the execution of ABCA figure of researches examined the execution of ABC and factors act uponing success. Shields ( 1995 ) , Anderson ( 1995 ) , McGowan and Klammer ( 1997 ) , Krumwiede and Roth ( 1997 ) , Krumwiede ( 1998 ) , Innes and Mitchell ( 1995 ) , Kiani, ( 2003 ) , Cotton, ( 2003 ) , Alsaeed, ( 2005 ) and Maelah, and Ibrahim ( 2006 ) .Anderson ( 1995 ) found that technological factors impacted on the success of ABC whereas the survey consequences of Shields ( 1995 ) , who examined the relationship between a diverseness of behavioural, organisational and proficient factors, and the success of execution of ABC, show that variables act uponing the success of implementing ABC affect behavioural and organisational variables, as opposed to proficient variables. These variables comprise top direction support, linkage of the ABC system to competitory schemes, linkage of the ABC system to public presentation rating and compensation, sufficient internal resources, developing in planing and implementing ABC and non-accounting ownership, which is the committedness of non-accountants to utilize ABC information.

Krumwiede ( 1998 ) surveyed U.S. fabrication houses to analyze how contextual factors, such as the potency for cost deformation or size of houses ; and organisational factors, such as top direction support, preparation or non-accounting ownership, affect each phase of the ABC execution procedure. He found that the different factors affected the assorted phases of execution of ABC and the grade of importance of each factor varies harmonizing to the phase of execution. He concludes that houses sing or implementing the ABC system should take organisational and contextual factors into history.

Table 2: demo the assorted factors that consequence the execution of ABC.Furthermore, all these studies found that acceptance rates for big companies were significantly higher than for little companies because these houses are better campaigner for the usage of ABC Alsaeed ( 2005 ) and they have more complex operations, assorted merchandises, and big operating expense. Its better to mention here merely Saudi study found positive relationship between merchandise diverseness and ABC acceptance.

In contrast with Bjornenak ( 1997 ) , no survey found a relationship between ABC acceptance and overhead degree, this is because the ABC helps houses to better their fight Raz and Elnathan, ( 1999 ) non merely to apportion overhead moreover, Saudi study found negative relationship between them.Research to day of the month has identified the most of import countries of application of activity-based information among adoptive parents of ABC as understanding cost behaviour, mensurating cost truth, Alsaeed, ( 2005 ) , cost decrease Kiani and Sangeladji ( 2003 ) Cotton et al. , ( 2003 ) ; Pierce and Brown ( 2004 ) , cost direction, Innes and Mitchell, ( 2000 ) ; Cotton et al. , ( 2003 ) , public presentation steps ( Innes and Mitchell, ( 2000 ) ; Cotton et al. , ( 2003 ) , product/service pricing, Innes michell, ( 2000 ) ; Cotton et al. , ( 2003 ) ; Pierce and brown, 2004 ) , cost mold ( Innes and Mitchell, ( 2000 ) ; Cotton et al. , 2003 ; Pierce and brown, 2004 ) , improve profitableness, Kiani and Sangeladji, ( 2003 ) Alsaed, ( 2005 ) , step clients profitableness, ( Alsaeed, 2005 ; Cotton et Al, ( 2003 ) ; Innes and Mitchell, ( 2000 ) extinguish non-value added Alsaeed, ( 2005 ) .

Although these studies specifically addressed ABC, it is clear from the scope of applications that the reported utilizations of activity-based informations go good beyond more accurate costing. However, the research workers argue about the troubles that faced ABC adoptive parents ( Innes and Mitchell, ( 2000 ) and kiani and Sangeladji ( 2003 ) found the top direction support and unwilling to alter ( organisational issue ) are most challenge factors for ABC adoptive parents while, Alsaeed, ( 2005 ) found insufficient in equal expertness and troubles to find cost drivers ( proficient issues ) the chief jobs of ABC adapters. This means, the proficient variable in modern states does non hold important of import to ABC adapters instead than organisational issues. Furthermore, New Zealand and Ireland studies found high acceptance rate in fabricating companies instead than fiscal companies in the UK studies.With respects to reject ABC the studies give the similar grounds for reject ABC ; lake of top direction support, unsuitable of ABC to their concern, and the bing costing system is satisfactory. In extra, those who reject ABC after it ‘s assessment, there are a several grounds for this rejection “ if ABC has demonstrated benefits, why are more houses non really using it ” : ABC may non be suited for every house. A big strand of recent research shows that successful execution depends on many facets ; successful execution depends on organisational and proficient factors ; acceptance depends on several factors including house size, production type, and grade of centralisation, merchandise ( Kennedy and Graves, 2001 ) diverseness, and the ratio of indirect to entire costs ; and Gosselin, ( 1997 ) suggests that specific features in their concern scheme and organisational construction lead certain houses to follow and implement ABC and, by deduction, other houses non to implement ABC.

Chapter THREE3. METHDOLOGY3:1 Theoretical ModelThe theoretical model of this survey suggests five independent variables ( Top direction support, Non- accounting, Organizational size, IT, and merchandise diverseness ) that may act upon the ABC acceptance. Figure 1 shows the theoretical model of this survey which include for independent variables3:2 Hypothesis DevelopmentsAnderson ( 1995 ) found that technological factors impacted on the success of ABC whereas the survey consequences of Shields ( 1995 ) show that variables act uponing the success of implementing ABC affect behavioural and organisational variables in add-on, Krumweide, ( 1998 ) suggested that houses sing ABC acceptance should give particular consideration to organisational factors. Therefore, this survey test the influence of two groups of independent variables ( organisation and technological ) on ABC acceptance.


Top direction support

Prescott and Conger ( 1995 ) refer to several surveies in the published IS inventions literature that systematically happen that top direction support is positively correlated with invention acceptance. Therefore, consistent with the published IS literature findings, it is expected that top direction support will be positively associated with the acceptance of ABC. Therefore, this survey examines this relationship based on the undermentioned hypothesis:

H1: There is a positive relationship between top direction supp ort and ABC acceptance

Non-accounting Ownership

Voltaics, ( 1999 ) stated there is a danger when comptrollers merely ain ABC because they might utilize it to fulfill their demand that may take to negative execution because of deficiency sharing between comptrollers and non-accountants. Therefore, comptrollers and non-accountants should be proprietors and affecting in execution of ABC. Therefore, this survey examines this relationship based on the undermentioned hypothesis:

H2: There is a positive relationship between non-accounting ownership and ABC acceptance.

Organizational size

The size of houses and ABC acceptance relationship was examined by ( Bjornenak, 1997 ; Clarke et al. , 1997 ; Van Nguyen Brooks, 1997 ; and Krumwiede, 1998, ) found that the degree of acceptance was higher among larger houses. Booth and Giacobbe, 1998 ) found a positive relationship at the induction of involvement in ABC phase, but no relationship for the ulterior rating and acceptance phases.

Furthermore, Alsaeed, ( 2005 ) ; and Maelah, and Ibrahim, ( 2006 ) found positive relationship between house size and ABC acceptance. This is because ABC execution is dearly-won, larger houses is more likely to obtain economic systems of graduated table, with the cost spread across several merchandises while the smaller houses have proportionally lower degrees of operating expense and, hence, do non endure the same jobs with cost deformations as larger houses, Clarke et Al, ( 1997 ) . Therefore, this survey examines this relationship based on the undermentioned hypothesis:

H3: There is a positive relationship between house size and ABC acceptance

Information Technology

ABC systems are more elaborate than traditional cost systems. Because of the increased information needed to implement ABC, directors with more sophisticated IT may experience better able to implement it than companies with less sophisticated systems. On the other manus, companies that have a low sentiment of their bing information system may be loath to seek ABC until back uping systems are improved or replaced.If direction perceives that most or all of the information required for ABC is available and that the organisation ‘s information systems are integrated adequate to minimise the costs of measuring, so there is a greater opportunity of ABC acceptance. Therefore, higher degrees of IT edification may impact the acceptance determination.

Therefore, this survey examines this relationship based on the undermentioned hypothesis:

H4: There is positive relationship between IT edification and ABC acceptance

Merchandises Diversity

Advocates of ABC claimed that high merchandise complexness and diverseness increased the costing deformations originating from traditional cost systems ( Cooper and Kaplan, 1988 ) . Bjornenak, ( 1997 ) and Krumwiede, ( 1998 ) both found a positive relationship between the degree of merchandise complexness and diverseness and the acceptance of ABC, Clarke et Al. ( 1997 ) and Alsaeed, ( 2005 ) found a negative association and Van Nguyen and Brooks ( 1997 ) did non happen any relationship. Therefore, because of Yemen and Saudi have same environment ; this survey examines this relationship based on the undermentioned void hypothesis:

Holmium: There is negative relationship between merchandise diverseness and ABC acceptance.

With respects of dependent variable ( ABC acceptance ) , old surveies suggest that it is best to look at ABC execution in its assorted phases. For case, Cooper and Zmud ( 1990 ) execution phase theoretical account has systematically been used as dependent variable in old surveies on ABC.

Their theoretical account include six phases ; ( 1 ) Initiation ( 2 ) Adoption ( 3 ) Adaptation ( 4 ) Acceptance ( 5 ) Routinization ( 6 ) Infusion. Krumweide ( 1998 ) further refined them into 10 phases ; ( 1 ) Not considered ( 2 ) Considering ( 3 ) Considered so rejected ( 4 ) Approved for execution ( 5 ) Analysis ( 6 ) Geting credence ( 8 ) Implemented so abandoned ( 9 ) Credence, and ( 10 ) Routine system. However, the present survey was unable to sort the phases harmonizing to either one of the surveies mentioned before. Alternatively, the present survey classifies ABC application into acceptance and non-adoption.

This is due to the unknown phase of ABC acceptance or in babyhood phase if its available in Yemeni fabrication environment3:3 Data Collection


The population ( 93 houses ) for the study is fabricating houses which listed in Yemeni chamber ( 2004 ) every bit good as some of foreigner fabricating companies in Yemen


Data for this survey collected by questionnaire which adopted from surveies conducted by Krumweide ( 1998 ) , Shim and Stagliano ( 1997 ) , and Shields and McEwen ( 1996 ) . This study consists three parts. First portion seeks general information for all houses ( adoptive parent and non-adopters. Second portion addressed to seek information about ABC adoptive parent houses merely, ( independent variables ) . Third portion addressed to seek information for non-ABC houses merely such as obstructions that make non-ABC houses to reject ABC.


A set of questionnaire was mailed to the comptrollers, caput of histories, and fiscal directors who know in deepness how the cost information is used within their companies. Mail was used because it places less force per unit area on the respondent, supply them with sufficient clip to look up records, and enable them to thoroughly read and reply the inquiry handily.3:4 AnalysissBoth the nominal and interval graduated tables will utilize in this questionnaire.

Nominal graduated table qualitatively distinguishes groups by categorising them into reciprocally sole and jointly thorough sets. In the questionnaire, the nominal graduated table is used to capture respondents ‘ and organisations ‘ background, and their overhead costing method. The information that can be generated from nominal grading is to cipher the per centum, frequence, mean, and standard divergence of the informations.On the other manus, the interval graduated table is used to capture the significance of independent variables for each variable, the questionnaire lists at least three statements and the composite mark is used to stand for each variable. The interval graduated table groups respondents harmonizing to certain classs and taps the order of these groups. It besides measured the magnitude of differences in penchants among the respondents.

Respondents were asked to bespeak their responses to assorted facets of ABC. Their responses were captured on a five point Likert graduated table that utilizes the followerss: ( 1 ) Strongly Disagree ( 2 ) Disagree ( 3 ) Somewhat ( 4 ) Agree and ( 5 ) Strongly Agree. In reacting to the inquiries, the respondents indicated the extent to which they agree or disagree to a assortment of statements on factors that were expected to hold influence on ABC acceptance.

Data analysis will execute on responses. The analysis includes descriptive analysis on the respondents and the organisations, finding of ABC acceptance position, descriptive survey on ABC adoptive parents, Factor Analysis, Test of Response Bias ( industrial- Consumer Industries, and Early on and Late Responses ) , Test of Reliability, and Logistic arrested development to find the influence of assorted variables on ABC acceptance.


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