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Abstract
This paper studies the factors determining the success and failure of Activity-Based Costing Systems (ABC) implementation. Despite its perceived technical validity, ABC has not been widely adopted since its introduction in 1980s. For those organizations that have adopted ABC, the majority of them are using it tentatively. The perceived administrative and technical complexities are the main reasons of rejection of ABC. While ABC model is feasible for initial pilot studies, it is difficult and costly to scale to companywide applications. Success or failure of ABC is found to be heavily influenced by a number of behavioral and organizational factors. The degree of importance of these behavioral and organizational factors to success of ABC is different at different stages of ABC implementation. Cultural differences play an important role in ABC implementation strategies. Approach to implement ABC should be tailored to specific cultural context.
Introduction
Considerable effort has been devoted to the development of more sophisticated costing system. The need to improve the accuracy of product costing information was driven by changes in the competitive landscape as well as increased global competition (Cooper 1988). The new competitive conditions challenged the validity of conventional costing systems. Cost accounting had traditionally allocated overhead to products or services using only one volume-sensitive driver, typically direct labor. For organization with high overhead and a mix of products or services, using a single cost driver may distort cost estimate (Cooper and Kaplan 1988).
Management accounting researchers have devoted considerable effort to addressing these limitations. Almost all of the attention has been devoted to studying activity based costing (ABC) systems. These systems emerged as the generic solution to product costing distortions and consequently as a means of improving competitiveness through more informed pricing and product mix decisions (Kaplan 1994). It has been claimed that activity-base costing (ABC) can provide improved information for strategic decisions involving product planning and cost management (Cooper 1988; Swenson 1995).
While the literature promoting the benefits of ABC systems is intuitively appealing, evidence has indicated relatively low rate of adoption of ABC (Innes, Mitchell & Sinclair, 2000; Cotton, Jackman and Brown 2003). In addition, it is apparent that many organizations have not gained promised benefits (Innes et. al, 2000). It appears that while the technical characteristics...