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Implementation Of Activity Based Costing In Developing Countries Accounting Essay

Activity based costing ( ABC ) is invariably replacing the traditional accounting system. ABC introduced by Professor Kaplan and Cooper of Business School of University of Harvard. ABC is method that lists and measures the cost of each activity that facilitates the production to present the merchandise and service to client. ( Sohal and Walter, 1998 )

The usage of Activity-Based Costing ( ABC ) in the West is really common as it provides more dependable information about the cost associated with bring forthing the merchandise. But in comparing with the developing states it is non so popular ; this may be because of the complexness of the accounting system or the cost associated with the execution or the cognition required for the execution of the system. ( Liua and Panb, 2007 )

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Activity-based Costing ( ABC ) helps us to place with the different cost activities for the each merchandise, service, or client by ciphering the cost that arises from bring forthing or doing or presenting the merchandise or service. ABC delivers more specific information than traditional accounting system because it identifies the relationship between the cost driver and the activities associated with the production of that merchandise. It helps to detect those activities those are non-efficient and does non add value to the public presentation of the activity ; therefore it helps the organisation to work the chance to cut down cost and maximise net income. ABC is an ideal manner to pull off activities and better the quality of activities by inquiring “ why ” and “ how good ” activities are adding value to merchandises and services. ( Moore, 2000 ) .

The chief concern in the field of accounting is to detect the different factors that contribute the success of direction accounting system. Activity Based Costing ( ABC ) is to a great extent used in the direction accounting for more than a decennary. The acceptance rate of ABC is about 20 % in the larger companies ( Pike and Tayles ) . ABC is non merely successful in the field of industrial fabrication system but besides it is successful in the field of wellness sector, public utilities, sweeping and retail organisation. In add-on to its application in a broad assortment of commercial fabrication concern it has besides been adopted by public public-service corporations, by sweeping and retail administrations. The acceptance rate in the Far East is non so mention worthy because of complexness in implementing the system ; it deals with tonss of proficient issues. The most important drawback of ABC execution is that, the users of ABC end product are non much aware of this new system, they are more acute to utilize the traditional accounting system, therefore it is necessary to guarantee that the member of direction who uses it are good knowledge about the ABC system, supplying preparation for the underscoring the logic, design, and execution of ABC. There is no grounds that, the execution of ABC will be successful, if the organisation is large, the direction understands the value of result, but it depends on how expeditiously and efficaciously the direction can do correlativity with the system for the better result of the ABC system. ( Pike and Tayles )

Article one: Bank OF CHINA

Bank of China, established in 1912, runing for about 100 old ages is the largest fiscal organisation in China. It serves the Chinese economic system for the well being of society by supplying banking service. The chief end of Bank of China is to entice foreign investing and aid in developing the Chinese economic system every bit good as the market. The bank serves the state by it 1000 subdivisions across the state ( Abdallah and Wei, 2008 ) .

Bank of China and ABC execution

Every company finds manner to minimise its cost. Bank of China is non an exclusion. For this ground the top direction of Bank of China decided to present activity-based costing system with a position to minimise its cost in 2005. The debut of ABC system was induced by several factors. First of wholly, from the mid 1990 ‘s different good celebrated bank came to China to make concern as Chinese economic system started to din and it was a attractive market for the foreign Bankss, Bank of China was confronting challenge from those foreign Bankss. Second, it wanted to present portion in the capital market. Third, the promotion of foreign bank in China compelled Bank of China to pull off its resource more efficaciously and expeditiously. For the aforesaid survey findings Bank of China wanted to implement ABC, although the execution was really slow and in most subdivisions the execution was halted ( Abdallah and Wei, 2008 ) .

Reasons of failure ABC execution in Bank of China

The ground of failure ABC execution in Bank of China can be viewed from the undermentioned treatments.

Vague concern end: The debut of ABC was done by the section of accounting, but there were no representative from any other section who was the user of the ABC system, because deficiency of involvement in ABC. This resulted loss of motive and letdown in the accounting section. On the contrary, most of the member of staff of different section of Bank of China was confused about ABC. Because, the end of ABC was non clear among the employees and most of the employees thought that, it would merely do a binding of the disbursement bound. Some employees thought that, it would assist the organisation to modify the procedure of work ; on the other manus some employees thought that, the construction of the organisation will be restructured. The general director of the Bank of China thought that, ABC would assist the company to increase the answerability in the different section of the organisation. So, it is really much evident that, the end of the execution of ABC in Bank of China was non clear.

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The ground behind the execution of ABC was to more effectual costing system, this position was from the accounting section of Bank of China. But the set uping costing system was a generic term which can non be followed. Interestingly, employees from different sections of Bank of China had different significance of ABC. The member of the organisation was confused and they lost their motive in ABC execution. At the terminal of the twenty-four hours, the employees of accounting section lost their involvement when their attempt was non welcomed by the other sections.

No academic cognition about ABC: Most of the employees had no academic cognition about ABC. Very few employees had a sound cognition about ABC. The accounting section made an attempt to cognize about the degree of cognition of ABC in different sections. The attempt revealed that, one of the directors from the corporate banking section does non cognize about the ABC. In the same survey, it revealed that, two directors know about ABC, but merely one of them know inside informations about the ABC system. The accounting section, who were in charge of planing the theoretical account the ABC, have gathered cognition from the book instead than existent experience. In a nut shell, no 1 in the organisation showed assurance in doing the ABC theoretical account fruitful. The survey besides revealed that, a proper punctilious larning about ABC was of import for the employees of Bank of China ( Abdallah and Wei, 2008 ) .

Inaccurate ABC theoretical account design: For doing a undertaking successful the design of that undertaking should be such that it makes a better result. In the same manner, for the execution of ABC a good design theoretical account is necessary. But for the Bank of China, the theoretical account of ABC execution was non found, the survey revealed that, the theoretical account was complicated to keep every bit good as it was really hard to understand for the directors. Furthermore, the design that was made by accounting section was non up to the grade and it needed more alteration. ( Abdallah and Wei, 2008 ) . As the employees had non plenty cognition about ABC, they failed to supply valuable suggestions for the redesign of the theoretical account.

No support from the other section: A major drawback of the accounting section was that, they did non acquire top direction support. The other section of the bank did non pay attending to the new system as it was entirely done by the accounting section. ( Abdallah and Wei, 2008 ) . For this non cooperation between the sections, the accounting section had no cognition about the maps of sections, as a consequence the theoretical account of ABC was non so good and they were unsuccessful in modifying the theoretical account.

Obstacles in the execution of ABC: Although directors welcomed the new accounting system, but personally this new system was non welcomed by directors. Most directors thought that this would restrict their control over operating costs. Many employees thought that, it will do their day-to-day work composite and will make jobs. Furthermore, persons thought that the current system is user friendly as the system allowed them to maintain the excess money for their ain section instead than returning the money to the general history ( Abdallah and Wei, 2008 ) . But the debut of ABC will take away their excess money.

No support from outside the organisation: To implement a new system support from expertness is needed non merely from the ain organisation but besides from outside the organisation. But for the Bank of China there were limited range of support from the exterior of the organisation. The bank was in pursuit for aid from the banking expertness comptroller, but it failed ( Abdallah and Wei, 2008 ) .Moreover, as the system was new, no other bank implemented the ABC from where they can hold some cognition about the execution of ABC.

Article Two: Thulium

Company background

Telecom Malaysia is ( TM ) is Malaysia ‘s taking nomadic service operator. It was established in 1986. It is a listed company in Malaysia.

The survey was conducted with TM ‘s director of Network Strategic Cost Management. The director was a member of ABC execution procedure at the initial phase. TM is a successful company which was able to implement ABC through the state.

The ABC execution was initiated by the finance division of TM in 1996.The debut of ABC in TM started in 1996 and was initiated by the finance division.

ABC is implemented in every section of TM. The international execution of ABC is still under procedure.

Reasons of ABC execution

The chief ground for the debut of ABC was monetary value competition. TM was losing its market portion. It had no option but to cut down cost, the lone manner to increase market portion is to cut down the monetary value of service. For this ground it wanted to place different cost drivers so that it can place where the company is losing its money in comparing to other telecommunication company. As the traditional accounting system could non place appropriate cost of each service it motivated the authorization to implement ABC.

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ABC execution procedure

At the beginning phase a on the job commission was formed, it included members from the costing, technology and other concerned section. The caput of the commission was an experient director who specialized in the field of accounting.

Another committed was formed which included top direction. TM besides hired specialised advisers to develop the concerned employees to do knowing about the ABC. Then they identified the different cost drivers. The company besides wanted to do certain everyone knows about the new system that ‘s why they invited relevant sections staff to work with them and to cognize about the system. The top direction supported them in every manner. They besides provided computing machine preparation for the employees. ( Majid and Sulaiman, 2008 )

TM used ABC for pricing of the merchandise, doing determinations about merchandise end product, managing of cost, for cut downing cost, planing new merchandise, profitableness analysis of client, betterment in the procedure and for planing new merchandise. Furthermore, they used ABC for measuring public presentation.

Execution jobs

At the really beginning, the top disposal of the company was non so motivated. They perceived that, it was same accounting system that was predominating so. So, it would merely be a waste of clip and money above all the waste of company resources. They besides thought that, there was more serious job than the debut of new accounting system. For the better apprehension of the benefit of the debut of ABC, bing director made a pilot trial to elicit involvement among the top authorization. The lower degree of the company was besides non convinced to accept the new accounting system. As employees did non hold cognition about the ABC accounting system. As engineering alterations more quickly, new cost drivers had to be introduced by the terminal of primary designation of cost drivers. ( Majid and Sulaiman, 2008 )

Advantage of utilizing ABC

ABC helped the company to cognize about the non-value added activity and the occupations which was done non-effectively. With the usage ABC directors were able to do more precise determinations. Furthermore, TM managed to cut down the clip and waste of resources. They besides identified that they were paying high cost for the overtime costs ( Majid and Sulaiman, 2008 ) . By the debut of ABC, TM developed a procedure flow. ABC helps relevant section directors to place those costs which are high. After the debut of ABC, TM was able to keep its resources more expeditiously and efficaciously.

Article three: Xu Ji Electric Co. Ltd.

Company background

Xu Ji is public limited company on Shen Zhen Stock Exchange in China. The company produces different electrical merchandises. The Xu Ji was ever wanted to maintain gait with the latest direction thoughts ; it took those thoughts which were successful in the West. As ABC was successful in the West Xu Ji was besides interested to implement the ABC.

Implementation procedure in Xu Ji

As competition was turning in the electronics sector, Xu Ji felt the demand to present ABC. The traditional accounting system is unable to place the departmental net income but in contrast to this ABC is able to happen out net income of single section. The traditional accounting system use direct labour hr cost, distribute operating expense across the production lines, which give incorrect merchandise cost and incorrect thought about the net income of each merchandise class. As the market demands merchandises in inexpensive monetary value, it was truly absurd for Xu Ji to sell merchandises in a inexpensive monetary value as they did non cognize about the cost driver of each merchandise.

The ABC execution in Xu Ji was conducted by a squad ; it included all the members from each section. For the successful execution of ABC a theoretical account was designed to place fabrication cost drivers and different cost activities.

To make it more expeditiously, computing machine automated system was introduced. But it was non so fruitful as the house which was helping in ABC mechanization was inexperienced. This drawback was solved by the Xu Ji by attaching the relevant forces with the package mechanization squad.

The chief drawback of the mechanization system was that it needed manual input of the informations.

Success factors of Xu Ji

Xu Ji was successful in the execution of for several grounds.

All the section was working together to do a fruitful result.

The mechanization of ABC was a great challenge as all the parties involved in the mechanization procedure were incognizant of ABC but this challenge was successfully met by the united attempt of all the parties.

Proper preparation was made for the relevant forces who were in charge of implementing the ABC.

The end of the group and the company was similar.

Before full execution of the ABC, a pilot trial was done to judge the result of the ABC.

Decision:

For the better execution of ABC it is necessary that, the support of the top degree of direction is really of import. As ABC is a new system for many organisation and there must be a cognition sharing procedure throughout the organisation. The user who will implement the ABC must be associated with the determination. Training for the employees is necessary. The cost drivers must be identified accurately. Before full execution of ABC, every organisation should run a pilot trial. The cost of system i.e. the computing machine mechanization system cost must be taken into history. The new system must look into what would be fiscal impact of execution of ABC. The ground behind the non-popularity of ABC in developing state is that it needs a batch of attempt to implement, every bit good as cost is associated with the execution. Last but non the least, for successful execution of ABC a perfect theoretical account, program, appropriate cognition and expertness is required.

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Implementation Of Activity Based Costing In Developing Countries Accounting Essay
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Activity based costing ( ABC ) is invariably replacing the traditional accounting system. ABC introduced by Professor Kaplan and Cooper of Business School of University of Harvard. ABC is method that lists and measures the cost of each activity that facilitates the production to present the merchandise and service to client. ( Sohal and Walter, 1998 )

The usage of Activity-Based Costing ( ABC ) in the West is really common as it provides more dependable information about the cost a

2018-10-23 09:22:16
Implementation Of Activity Based Costing In Developing Countries Accounting Essay
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