会计学dissertation：作业成本法在英国小型制造企业中的应用

中小型企业有潜力使用essay成本法（ABC）作为管理工具。虽然事实上，基于活动的成本计算主要是由大型组织使用的，但它也适用于中小型企业。在中小型企业中，通过提高生产率和质量来争取企业的主要份额，这一点越来越重要。

本研究是试图解释为什么需要在英国的小型制造企业，以确定有用的活动成本计算，以提高他们的整体表现，从而提高他们的竞争力。这项研究是基于信息的主要来源和次要来源。收集的信息清楚地表明，在英国的小型制造企业需要应用基于活动的成本计算，原因很多，最流行的是计算更精确的产品成本。同样，各种各样的原因也被发现为什么这些公司从来没有考虑基于活动的成本计算。

本研究回顾了英国小型制造企业的成本管理实践。以英国纺织服装业为例，说明小制造业的冷漠。此后，试图强调可能阻碍在英国的小型制造企业实施essay成本法的可能障碍。最后，该研究试图指导在小制造企业中基于活动的成本计算的顺利实施所需的方法的改变。最后，对小型制造企业essay成本法的研究方向进行了展望。

 

Confidentiality Statement

This study contains confidential and sensitive information. It is not open to the public and require special precautions to protect it from unauthorized use, disclosure, modification, and destruction.

 

Acknowledgements

I would like to acknowledge all respondents who have contributed to this work by giving appointment and taking out time to answer questions during the interview.

 

I also received a lot of help and advice from people who are working in small manufacturing organisations and others who felt they shouldn’t be named. I am grateful to all of them.

 

Abstract

Small and medium enterprises have a potential of using Activity Based Costing (ABC) as a management tool. While it is true that Activity Based Costing is being used mostly by large organisations, it can work just as well for small and medium companies. It is gaining importance in small and medium organisations that are aiming for a major share in business by improving productivity and quality.

 

The present study is an attempt to explain why there is a need for small manufacturing companies in the UK to identify the usefulness of Activity Based Costing to improve their overall performance and hence their competitiveness. The study is based on both the primary and secondary sources of information. The information collected clearly reveals that small manufacturing companies in the UK need to apply activity based costing for a variety of reasons with the most popular being to calculate more accurate product costs. Similarly, a variety of reasons have also been identified why these companies never considered activity based costing.#p#分页标题#e#

 

This study reviews the cost management practices in small manufacturing companies in the UK. It takes the case of UK textile and apparel industry to be representative of the small manufacturing sector to explain the indifference. Thereafter, an attempt to highlight the possible impediments which are preventing the implementation of Activity Based Costing in small manufacturing companies in the UK. Finally, the study attempts to direct the change in approach required for a smooth implementation of activity based costing in small manufacturing companies. Finally, some future research directions are presented in the area of activity based costing in small manufacturing companies.

 

Glossary and Information

ABC

 

Activity Based Costing

 

Activity Based Costing:

 

Activity Based Costing is a costing method that traces costs incurred to the activities involved therein. It explores the relationship between activities and costs.

 

CBI

 

Confederation of British Industry

 

Cost Driver

 

A characteristic of an activity that leads to incurrence of costs by that activity.

 

Costing

 

The process of identifying the costs of the business or a product

 

Traditional Costing

 

Allocation or assignment of factory’s indirect costs to the products manufactured on the basis of volume such as the number of units produced, the direct labor hours, or the production machine hours.

 

Table of Content

 

Confidentiality Statement

 

Acknowledgments

 

Abstract

 

Glossary and Abbreviations

 

Introduction

 

What is Activity Based Costing?

 

Literature Review

 

Rationale of the Study

 

Objectives and Research Methodology

 

Sources of Data / Information

 

Sampling for Primary Information

 

Data Analysis

 

Problems and Challenges Faced

 

UK Manufacturing Sector

 

State of UK Textile and Apparel Manufacturing Companies

 

Main Findings of the Study

 

Impediments to Adopting Activity-Based Costing at the Small and Mid-Sized Organisation

 

Recommendations: Making Activity-Based Costing Work for Small Manufacturing Companies#p#分页标题#e#

 

Summary

 

References and Bibliography

 

Appendices

 

Lists of Tables and Figures

 

Tables:

 

Table 1: Activity Based Costing Quotient

 

Table 2: Reasons for Not Considering Activity Based Costing

 

Figures:

 

Figure 1: Contribution to Total Manufacturing Wealth

 

List of Appendices

 

Appendix A: Business Report Proposal

 

Appendix B: Structured Interview Format

 

Appendix C: Examples of transcripts of interviews

 

Introduction

Costing methodology is indicative of how a company determines the cost of its products. Choosing an appropriate costing methodology is important for the company as senior management takes strategic decisions related to product lines, product prices etc on the basis of accurate and up-to-date costing information. If the costing methodology is not proper or up-to-date there are chances of inappropriate decisions being taken which may adversely impact the competitive standing of the company.

 

While large companies have realised the importance of moving away from traditional costing systems based on volume-based allocation of overheads, small manufacturing companies still exist in the traditional costing maze which has lost relevance in the current competitive manufacturing environment. Current environment is based on cost-driver driven costing especially when there has been an increase in overhead and a substantial decline in direct labour. Large companies have moved to approaches such as Activity Based Costing which present a radically changed alternative to traditional costing whereas small and medium sized manufacturing as well as non-manufacturing companies lag behind.

 

The focus of the current study is application of Activity Based Costing in small manufacturing companies in the UK. This is especially relevant when the experience of a small manufacturer indicates that a direct-labor based, plant wide manufacturing rate does not accurately reflect the cost of individual products. The management of a few manufacturing companies have taken the pain to assemble a multidisciplinary team to apply the basic concept of Activity Based Costing to create a cost model that would accurately cost out each of the company's parts.

 

What is Activity Based Costing?

Activity Based Costing is a costing method pioneered by Robin Cooper, Robert Kaplan, and H. Thomas Johnson for allocating costs to products and services. It helps managers make the right decisions especially regarding product mix and competitive strategies.#p#分页标题#e#

 

The system traces costs incurred to the activities involved therein. It explores the relationship between activities and costs. Activity Based Costing treats activities as the primary cost drivers and their costs are traced to the product for which they are performed. Activities consume overhead resources, and products (or projects or processes) demand activities, the cost of products is related to the cost of resources. (Cooper, 1990).

 

By design, Activity Based Costing provides not only relatively accurate cost data, but also information about the origin of the cost (Cooper and Kaplan). Various companies, especially where the management is progressive and managers have some experience in Activity Based Costing have implemented it.

 

Literature Review

Experience with Activity Based Costing, as shared by managers who have tried and tested the methodology, clearly highlights that such a costing method improves cost measurement by organising information around activities.

 

Prior studies, research work and existing literature in Activity Based Costing clearly indicates that its implementation can “radically change how managers determine the mix of their product line, price their products, identify the location for sourcing components, and assess new technology” (Turney, 1989). Despite the various critical areas which these studies touches upon there still are many more are largely unexplored. Most of the literature in the area of Activity Based Costing focuses on its application in the large sized manufacturing and non-manufacturing companies. Small companies, both manufacturing as well as non-manufacturing, have not been focused as there are not many instances of application Activity Based Costing in such companies.

 

Most of the research work in Activity Based Costing has primarily focused on large manufacturing companies and that too their experience post-implementation. Some important contributors in this respect include Gietzmann, 1991, Innes & Mitchell 1990, Bhimani & Pigott, 1992; Friedman & Lyne, 1995, 1999; Kocakulah, Fowler & McGuire, 2000; Granlund, 2001.

 

Another aspect which has interested many researchers has been why some companies for reject Activity Based Costing. In this context contributors of Cobb, Innes & Mitchell, 1992 and Waeytens & Bruggeman, 1994 are worth highlighting. However, researchers have somehow not given due importance to investigation into reasons why operating units do or do not investigate Activity Based Costing and how they undertake the ABC investigation decision. A review of the current literature relating to Activity Based Costing in small as well as large companies was undertaken to understand the reasons of its poor take up amongst small UK manufacturing companies. Some existing work is highlighted in the paragraphs that follow.#p#分页标题#e#

 

Shields & McEwen (1996) in their study titled The Impact of Activity-Based Costing Techniques on Firm Performance, point out that adequate resources, both internal as well as external, are needed to design and implement Activity Based Costing. Internal resources include organisation wide commitment of the top managerial staff, and external resources include team of experts or consultants and suitable Activity Based Costing software. Shields & McEwen stressed upon the importance of the role played by the external consultants. As against it, Cooper et al. (1992) in his study clearly indicates that Activity Based Costing can be successfully implemented with external consultants playing only facilitating role in the development and running of the system. The external consultants can be involved in initial training, assisting the internal team, transferring data into the Activity Based Costing model, and assisting in analysing and preparing reports and presentations. This view is also supported by the study titled A framework for assessing cost management system changes: the case of activity based costing implementation at General Motors conducted by Anderson (1995). Anderson found that consultants provided external validity to Activity Based Costing.

 

Krumwiede (1998) studied the relationship between stages and factors in ABC adoption in a survey of U.S. manufacturing firms in his work titled, The implementation stages of activity-based costing and the impact of contextual and organisational factors. He contended that the early adoption of Activity Based Costing is influenced by both external as well as internal factors. External factors include cost distortion and decision usefulness of cost information while internal factors include team size. Krumwiede also examined the various factors that influenced the successful implementation of Activity Based Costing. According to him, these factors include: the level of top management support; the level of non accounting ownership and training and purposes.

 

Another important contribution that needs a special mention here is the recent work by Anderson (2002). Anderson, through his work titled Factors influencing the performance of activity based costing teams: a field study of ABC model development time in the automobile industry, addresses the issue of designing an Activity Based Model. The model builds upon team dynamics, composition, outcome and the external environment. This work of Anderson strengthens the understanding of the factors influencing the application of this accounting technique for achieving and analyzing routine systems.

 

Finally, Douglas T. Hicks (1999) in his work titled Activity-Based Costing: Making It Work for Small and Mid-Sized Companies focuses on the ‘‘activity-based’’ behavior of costs in small to mid-sized businesses. He describes the use of activity-based costing in small- and mid-sized companies to make better business decisions. According to Hicks, ‘‘activity-based costing’’ is the concept to adopt, not the system to install, strongly implying that there cannot be uniform ‘‘activity-based costing systems’’#p#分页标题#e#

 

Rationale of the Study

From the literature review conducted one can observe that there are still issues in Activity Based Costing which remain partially unexplored. One such issue relates to why and how small sized operating units investigate Activity Based Costing in manufacturing industry. This is the area the study attempts to explore, that is, why small manufacturing companies investigated, were currently investigating and were intending to investigate ABC; why they did not investigate ABC; how they investigated, were currently investigating and were intending to investigate the appropriateness of ABC. The focus of the paper is primarily UK based small manufacturing companies.

 

Though research in large companies provides a direction to research in small companies, it is important to distinguish between the costing between large and small manufacturing companies. The proportion of direct and indirect costs may be different but the cost structure of large sized firms is not different from small manufacturing firms. Like large firms the total cost of small manufacturing firms is also have direct material costs, direct labour costs and fixed overhead costs. However, fixed overheads make up a larger proportion of total costs in large sized manufacturing firms. These differences make it difficult to consider Activity Based Costing in a single sample of all types of firm. Therefore this paper examines the issue of investigating ABC for a sample of only small manufacturing firms. (Refer Appendix A: Business Report Proposal)

 

Although the literature has reported numerous implementations of Activity Based Costing in large manufacturing companies, there has been limited accounting of Activity Based Costing being embraced by small manufacturing companies (Turney, 1989). This is perhaps very true for UK.

 

Objectives and Methodology

For the purpose of this study a small manufacturing company is defined as a company employing less than 100 employees.

 

The objectives of the study are:

 

Analyse state of Activity Based Costing in small manufacturing companies in the UK

Identify the factors preventing a company in UK from adopting Activity Based Costing in UK

Determine the role of technology in implementation of Activity Based Costing and whether it is the major deterrent for the small companies

Examine the role of resource poverty in prevention of small companies from adopting Activity Based Costing

The study employs a longitudinal case-study methodology, which focuses on data gathering from manufacturing companies which are representative of UK small manufacturing companies that can undertake activity based costing. It takes the case of UK textile and apparel industry to be representative of the small manufacturing sector to explain their indifference to costing methodology. The case study is expected to highlight how a company can improve its profitability if it moves to an ABC system.#p#分页标题#e#

 

The study may provide a further scope of future research undertaken to evolve a methodology through which small companies can adopt Activity Based Costing at low risk and with minimal investment. Besides attempting to highlight the need to evolve a methodology for enabling small companies to smoothly switch from a traditional costing system to an Activity Based Costing system, the study will be undertaken as a practical application of a financial management tool that would be useful to academia, managers in small manufacturing companies and government planners looking for ways to increase profitability for small UK firms.

 

Sources of Data / Information

This is primarily an exploratory and descriptive study and uses both primary and secondary sources. These sources complement each other and help reduce bias. However, most of the information comes from secondary sources.

 

The rationale of primary data collection is to validate the information collected from secondary sources and also to get an authoritative opinion on the information. Interviews were used as part of a wider project about product costing in small manufacturing industry to obtain information about operating units experience of ABC.

 

The respondents were asked to answer the classify their organisation as currently using ABC, intending to use ABC, currently investigating using ABC, intending to investigate using ABC, rejected ABC but established a system of activity analysis or cost driver analysis, implemented ABC and subsequently abandoned it, investigated using ABC and rejected it, rejected ABC but never investigated its possible use, and other.

 

Sampling for Primary Information

The Primary data has been collected by interviewing managers ( refer Appendix B and C for Structured Interview Format and example of interview transcript) with job titles of cost, management or manufacturing accountant, and employed in small manufacturing companies in textile and apparel industry in the UK. In all there were 7 respondents. Convenience sampling was relied upon as availability of the senior managers was critical factor in information collection.

 

The prime sources of secondary information include the existing work in the area and the published articles in premier Management Accounting journals. Information has also been collected by searching specific data from yahoo and google search engines.

 

Data Analysis

Data has been compiled into tables and analysed. Qualitative data includes opinions of respondents on a certain issue, reasons for a certain behaviour; and descriptions of certain procedures, practices or perceptions with which the researcher is not familiar.

 

Problems and Challenges Faced

The problems or challenges presented by the approach are:#p#分页标题#e#

 

The choice of ‘appropriate’ representative manufacturing companies. A random selection of the small companies within Textile and Apparel Industry was undertaken. However, the extent to which these are representative of the small manufacturing companies in the UK is questionable.

Collection of data and information related to internal processes from senior managers and employees. It was extremely difficult to make them share the internal information.

Availability of senior managers for interviews was a very challenging task. It involved too much of effort and skepticism from their end.

No data is available on the number of small manufacturing units that have adopted Activity Based Costing

It was difficult to collect sufficient data to be considered representative of the small manufacturing companies as the study was restricted in term of time available

Before discussing the main findings, there is a need to examine the state of the manufacturing sector in UK in general and the State of UK Textile and Apparel Manufacturing Companies, in particular.

 

UK Manufacturing Sector

The UK manufacturing sector is constituted by the large, medium and small manufacturing companies. Overall manufacturing output accounts for about 20% of the national economy, generating more than £150bn a year. The sector also employs four million people - representing roughly 14 % of everyone working in the UK. According to Confederation of British Industry (CBI), further 2.4 million jobs in the services industry depend upon manufacturing. Manufacturers also provide 60% of the UK's exports which is a sizeable contribution for a country that is heavily involved in international trade.

 

Figure 1: Contribution to Total Manufacturing Wealth (Source: Confederation of British Industry, 2000)

 

The focus of the study is on UK small Textile and Apparel manufacturing industry to be representative of the UK small manufacturing companies.

 

State of UK Textile and Apparel Manufacturing Companies

The second half of 20th century saw an exodus of UK Textile manufacturing units overseas. This was due to various reasons. The most important ones were:

 

The low cost of manufacturing in developing countries

Increasing globalisation of companies

The growing importance of branding and marketing

Despite this exodus, in 2005, the UK clothing and footwear industry was worth £44.45 billion. The UK textile manufacturing industry employs an estimated 89,800 people in 3,650 firms (2001). In 2001, textile-manufacturing sales amounted to £7.26 billion and exports were worth £1.35 billion. The main growth sector within the industry is technical textiles. The UK has a buoyant and expanding technical textiles sector. (Source: Clothing and Footwear Industry Market Report, Key Note, 2004 and 2005) Large-scale manufacturers have almost vanished from the UK. The core business now is the sourcing and supply of goods. However, there is a trend for some large retailers to become involved in both manufacture and sales. Even in the small sector there is a small segment which continues to manufacture textiles on a small scale and competes with global brands. Some of these companies have already switched over to Activity Based Costing.#p#分页标题#e#

 

Presently, the UK is among the top five countries developing product durability and innovation, particularly in the area of fire resistance material, where the UK is the world leader.

 

Textile industry within the UK is localised.

 

The major regions for textile companies are the East Midlands, the North West, London and Central Scotland.

The major regions for textiles are the East Midlands, the North West, Central Scotland, Yorkshire and Northern Ireland. London has relatively few textile companies.

The majority of the largest retailers have branches in all of the major cities, however, their head offices are generally concentrated around London and the South East.

 

From the above discussion it is clear that manufacturing companies play an important role in the UK economy. This holds true for small companies also. However, these small companies exist amidst ever-increasing competition not just from large companies but also from other small companies. The success of a company is based on its ability to delight its customers by manufacturing the right mix of products that are high in quality and low in price. This entails a company being able to use modern and realistic methodologies including modern financial techniques, such as costing techniques, in its approach to handling competition. In this light, studying the extent of adoption of state of art costing methodologies like activity based costing in small textile manufacturing companies in UK as representative manufacturing companies throws light upon certain critical factors which will have an impact on the future growth of the sector.

 

Main Findings of the Study

The main findings of the study are summarised below:

 

Most of the small manufacturing companies are aware of the need to need to move to Activity Based Costing system as against traditional costing system. Table 1 highlights the awareness of need for Activity Based Costing among the senior financial managers interviewed. More than 70% respondents had thought about Activity Based Costing at one point or the other. Almost 43% intended to use Activity Based Costing but because of certain impediments and circumstances, discussed later, they were unable to do so. Nearly 60% of the total respondents were either using Activity Based Costing or intended using it. However, a substantial percentage of the respondents had never considered activity based costing. It is also interesting to note that at least 1 respondent (representing 14.3%) rejected Activity Based Costing in the present competitive times.

 

The figures presented in Table 1 clearly indicate that there is a need to investigate why small manufacturing companies in UK did or did not consider Activity Based Costing and the basis of accepting or rejecting Activity Based Costing.#p#分页标题#e#

 

The 60% respondents who indicated an interest in Activity Based Costing gave various reasons for its importance in the present competitive times. Some of the main reasons given by the respondents include the following:

Do accurate product costing

Provide an objective method of assigning indirect overheads to products

Required for objective performance measurement

Internal Pressures

Helps in customer profitability analysis

Assign marketing costs to products

All organisations were talking about it or it was in vogue

However, organisations that looked at Activity Based Costing because it was in vogue did not really adopt it because they did not appreciate the need for changing to Activity Based Costing

 

Few reasons for adopting or evaluating Activity Based Costing are listed below:

 

"You can only control that which you can measure. Both Traditional as well as Activity Based Costing help you to measure. However, the degree of control is determined by the quality of the measurement and traditional costing does not ensure that"

 

“ It is the buzz word. It is everywhere……conferences, professional journals, seminars, discussion forums …”

 

“ My experience with ABC in my previous company is the main reason for looking at it for my current company”

 

Thus, as Ralf Sorenson (Head of SIS Airlines) states:

 

Activity Based Costing is 30% understanding and using techniques correctly, and 70% the ability to convince others to accept beneficial change. No matter how brilliant the measurement, if people reject it, nothing has been achieved and the analyst has failed."

 

(Source: CPS- Activity Based Costing Guide accessed from http://www.cps.gov.uk/publications/finance/abc_guide.htm)

 

The 40% respondents who either rejected Activity Based Costing or never thought about it also had their own reasons.

The organisation never felt the need to do so

Lack of knowledge about Activity Based Costing

The implementation had huge financial implications

Small team of experienced accountants. Most of the times the expertise in use of financial tools and techniques is lacking

It is difficult to explain the concept of Activity Based Costing to the employees. Till the concept is understood by one and all it will not be possible to implement it.

Small organisations are struck by resource poverty.

 

The organisations that either applied or intended to use or rejected Activity Based Costing evaluated or proposed to evaluate Activity Based Costing used or proposed to use:#p#分页标题#e#

Consultants or specialists in the area

Self managed in-house implementation

Though using consultants is a useful approach, it can prove to be extremely expensive and beyond the reach of many of the small organisations. Small manufacturing organisations realize that if they do a cost benefit analysis of implementing Activity Based Costing taking help from consultants the costs will outweigh the benefits. However, a few respondents emphasized the importance of the consultant in obtaining top management support for Activity Based Costing.

 

In contrast to using consultants, the in-house self-managed implementation is haphazard. Activity Based Costing is not treated as a special project and is conducted as a part of normal work duties. This may primarily be one of the main reasons for not implementing Activity Based Costing in many such small manufacturing organisations.

 

From the information gathered during the interviews with our 7 respondents, it seems that high cost and complexity of Activity Based Costing has discouraged most small manufacturing companies from even trying out Activity based Costing and thus improving their costing information.

 

Impediments to Adopting Activity-Based Costing at the Small and Mid-Sized Organisation

Upon closer examination, there appears to be several factors preventing small manufacturing firms in the UK from implementing an Activity Based Costing system. Some of the impediments identified include:

 

Lack of data,

Lack of technical and financial resources

Inadequate computerization.

Perhaps the main obstacle, lack of data, centers on the problem of collecting and processing the needed data in the correct format at a reasonable cost. Because the information needed for Activity Based Costing is costly and small manufacturing firms are typically constrained financially, these companies need to be very selective in the type of data and analysis that they use to determine overhead costs. Moreover, small businesses operate uniquely, a condition referred to as resource poverty that requires specialized cost management approaches (Welsh and White, 1981). Thus, a methodology that will enable a small company to obtain accurate product cost information yet minimize financial effort is needed.

 

Recommendations: Making Activity-Based Costing Work for Small Manufacturing Companies

Many senior financial managers also indicated that companies benefiting the most from Activity Based Costing would be companies with a significant amount of overhead pertaining to a diversity of activities in providing goods to customers whose demands also vary. In other words, if your company has little overhead cost and manufactures almost identical products requiring similar attention for each product, the need for ABC probably isn’t there and in most of the small manufacturing companies this was the scenario.#p#分页标题#e#

 

Size seems to be a significant factor whether an organisation adopts Activity Based Costing. According to Douglas Hicks (January 1999) “ Sales of firms adopting Activity based Costing averaged $101-$500 million, non adopters to $11-$100 million and nil adoption for companies having sales of less than $11 million.” (Source: Hicks, Douglas, Activity-Based Costing: Making it Work for Small and Mid-Sized Companies) This stands true for UK companies also. Thus, small companies seem to be excluded from implementation of Activity Based Costing.

 

Several companies have indicated that give lack of resources, both in terms of people as well as money, as the primary reason for not adopting a complex Activity based Costing system. In fact, it is not the lack of resources but their approach towards unexplored territory which holds back the small companies from adopting Activity based Costing. These small manufacturing companies inadvertently associate Activity Based Costing with excessive consulting fee, massive effort and massive data collection, investment in new software and system conversions. This is not the right approach. In fact, small companies should appreciate Activity Based Costing for the purpose it is required and not as a complex methodology. The purpose of Activity Based Costing is to provide meaningful cost information. This cost information should reflects the cause and effect relationship between costs, activities, products and services. The complex integrated systems devised by consultants and software companies are not always required.

 

Activity based costing is in reality a simple concept that can be adopted in a wide variety of ways. Sometimes all that is required is that managers change their approach or their mindsets. At other times simple modifications need to be made to the existing costing system. Instead of investing in new ABC software, computer spreadsheets may be sufficient to provide accurate and relevant cost information. Thus, more small companies can be expected to adopt Activity Based Costing if they try and understand it only at a basic conceptual level. Systems and software are only secondary issues.

 

Douglas Hicks presents this need of managers to change their mindsets in his study titled, Activity-Based Costing: Making it Work for Small and Mid-Sized Companies. He says “ I ask a question each time I address a group of non-accountants. How many people here have heard about Activity Based Costing? I get a 60-70% raising their hands. When I ask the follow up question , how many people have heard anything good about activity based costing? Only about half of those hands are raised. Obviously, something is preventing the message from getting through.” If ABC has to get acceptance by small units it has to be understood as a simple tool.

 

Summary

The research question being addressed by the present study focuses on state of activity based costing in small manufacturing companies in the UK. It has been observed that despite the important role Activity Based Costing can play in improving the competitive edge, it has received little attention from small manufacturing companies in the UK. Through this study an attempt is made to understand the cost management practices in small manufacturing companies in the UK and why there is a need to change to activity based costing. In addition, the study highlights the reasons preventing such companies from moving to activity based costing. It also attempts to develop a framework for the implementation of activity based costing in small manufacturing companies.#p#分页标题#e#

 

From the findings of the current study and the existing literature it can be primarily seen that in most of the cases small manufacturing companies fail to adopt Activity Based Costing as they are put off by excessive costs and efforts involved. However, the problem lies with inadequate understanding of the concept of Activity Based Costing. The managers need to change their mindsets to enable organisations to move to this methodology. Complex step-by-step implementation is not required in the beginning.

 

Business Report Proposal

 

Research Aim and Rationale

Although the literature has reported numerous implementations of Activity Based Costing in large manufacturing companies, there has been limited accounting of Activity Based Costing being embraced by small manufacturing companies (Turney, 1989). This is perhaps very true for UK.

 

The current study proposes to attempt an examination of the extent to which small manufacturing companies in UK, in general, have adopted Activity Based Costing. For the purpose of this study a small manufacturing company is defined as a company employing less than 100 employees. The study proposes to look into the factors preventing such companies from implementing Activity Based Costing. Are small manufacturing companies unable to implement an Activity Based Costing primarily because of lack of technical and financial resources or are there other reasons such as lack of expertise? The study proposes to look into various aspect of implementation of Activity Based Costing in small manufacturing companies.

 

Thus the study aims to:

 

Analyse and compare the trends of large and small manufacturing companies in the UK adopting Activity Based Costing

Identify the factors preventing a company in UK from adopting Activity Based Costing in UK

Determine the role of technology in implementation of Activity Based Costing and whether it is the major deterrent for the small companies

Examine the role of resource poverty in prevention of small companies from adopting Activity Based Costing

The study may provide a further scope of future research undertaken to evolve a methodology through which small companies can adopt Activity Based Costing at low risk and with minimal investment.

 

Expected Benefits from Research

The paper takes an existing well-known financial tool and examines its use in an area of the economy with little or no previous exposure to its benefits.

 

Besides attempting to highlight the need to evolve a methodology for enabling small companies to smoothly switch from a traditional costing system to an Activity Based Costing system, the study will be undertaken as a practical application of a financial management tool that would be useful to academia, managers in small manufacturing companies and government planners looking for ways to increase profitability for small UK firms.#p#分页标题#e#

 

A review of the current literature relating to Activity Based Costing in small as well as large companies will be undertaken to understand the reasons of its poor take up amongst small UK manufacturing companies. The study will also employ a longitudinal case-study methodology, which will focus on data gathering from at least two manufacturing companies which are representative of UK small manufacturing companies that can undertake activity based costing. It will test the theories and assumptions of activity based costing in the context of the selected manufacturing companies. The case study is expected to highlight how a company can improve its profitability if it moves to an ABC system.

 

Sources of Data / Information

This will primarily be an exploratory and descriptive study and will use both primary and secondary sources. These sources complement each other and help reduce bias. However, most of the information will come from secondary sources. The Primary data will be collected by interviewing senior managers and if required, administering written questionnaires to employees from the selected manufacturing companies. The rationale of this data collection will be to validate the information collected from secondary sources and also to get an authoritative opinion on the information.

 

Sampling for Primary Information

Primary data will be collected from senior managers in the finance and accounting department of the selected manufacturing companies. Convenience sampling will be done as availability of the senior managers will be critical factor in information collection. On an average, 2-3 people directly involved in costing systems in the finance and accounting department of each such company will define the sample.

 

The prime sources of secondary information will include the existing work done in the area and the published articles in premier Management Accounting journals. Information will also be collected by searching specific data from yahoo and google search engine.

 

Data Analysis

Data will be compiled into data master sheets and analysed. Analysis of quantitative data from the data master sheets will involve the production and interpretation of frequencies, tables, graphs, etc., that describe the data. Cross tabulations will be done for further analysis of the quantitative data. This analysis is required to present trends.

 

Qualitative data may include opinions of respondents on a certain issue, reasons for a certain behaviour; and descriptions of certain procedures, practices or perceptions with which the researcher is not familiar. The data can be analysed by listing all answers for a particular question and then classifying all answers into 5 to 7 categories.

 

Problems and Challenges

The expected problems or challenges presented by the proposed approach are:#p#分页标题#e#

 

The choice of ‘appropriate’ representative manufacturing companies

Collection of data and information related to internal processes from senior managers and employees

Availability of senior managers to provide the information

Appendix B

 

Structured Interview Format

 

Name:

 

Organisation:

 

Designation:

 

What is the size of your organisation?

Number of employees

Number of products

Market position

How do you allocate indirect costs of the organisation to the various products?

Have you ever faced a situation where your easy to make products are showing losses whereas your complex products are indicating profits?

Did you do a root cause analysis of the reasons? What were your findings?

Do you think your approach to determining the cost of products is appropriate?

Have you looked at other methods of costing? If yes, which one?

Have you thought about Activity Based Costing?

How would you classify your organisation’s take on Activity Based Costing?

Already using Activity Based Costing

Intend to move to Activity Based Costing soon

Have tried activity based costing but it did not work

Have not thought about Activity Based Costing

Are not aware of activity based costing

On the basis of the answer to 8 above seek further information as:

Already using Activity Based Costing

 

Since when have you been using Activity Based Costing?

Why did you move to Activity Based Costing?

Who proposed Activity Based Costing to the organisation?

How has your organisation benefited from Activity Based Costing?

How did you make the transition?

Since when have you been using Activity Based Costing?

Do you have any past experience with the costing methodology?

Did you invest in external expertise?

Did you invest in any software for Activity Based Costing?

Are you facing any problems in implementation of Activity Based Costing?

How do you mitigate the problems?

Any other thoughts?

Intend To Move

 

Why do you need to move to Activity Based Costing?

How will your organisation benefit from Activity Based Costing?

How do you propose to move?

Within what period will you be doing that?

Will you be investing in external expertise?

Will you be investing in any software for Activity Based Costing?

Do you have any past experience with the costing methodology?#p#分页标题#e#

Are you anticipating any problems in implementation of Activity Based Costing?

How are you planning to mitigate the problems?

Any other thoughts?

Tried and Rejected

 

What is the first thing that comes to your mind when you think about proposing Activity Based Costing for your organisation?

When did you try Activity Based Costing?

How did you make the transition?

Do you have any past experience with the costing methodology?

Why did your organisation reject it?

What were the specific problems based by the organisation?

Will you be reconsidering Activity Based Costing again? If yes, when?

Did you invest in external expertise?

Did you invest in any software for Activity Based Costing?

Do you think you would have been better off if you had / had not invested in external expertise and / or software?

Any other thoughts?

Not Considered

 

What is the first thing that comes to your mind when you think about proposing Activity Based Costing for your organisation?

Are you convinced about the benefits of moving on to Activity Based Costing?

What is preventing you from considering Activity Based Costing?

Do you think your organisation is too small for Activity Based Costing?

Will you be considering moving to Activity Based Costing in the future?

Within what period will you be doing that?

What problems do you think will be there if you have to implement Activity Based Costing in your organisation?

Any other thoughts?

Appendix C

 

Examples of transcripts of interviews

 

Name: V. Smith

 

Organisation:

 

Designation: Accountant

 

1. What is the size of your organisation?

 

Number of employees: 40

Number of products: 5

Market position: Not sure

How do you allocate indirect costs of the organisation to the various products?

We distribute the cost on the basis of number of units manufactured.

 

Have you ever faced a situation where your easy to make products are showing losses whereas your complex products are indicating profits?

Yes! Infact we had to close the production of one item just because it was taking too much of the cost. But then still the problem was not resolved.

 

Did you do a root cause analysis of the reasons? What were your findings?

Yes! The senior management looked into it and decided to reintroduce the product. We tried to cut down on the quality of the material we were using to manufacture the product.#p#分页标题#e#

 

Do you think your approach to determining the cost of products is appropriate?

Not sure. But for an organisation like ours, which is too small, what else could we do?

 

Have you looked at other methods of costing? If yes, which one?

No. Our company is too small to invest in other methods.

 

Have you thought about Activity Based Costing?

I am aware of it. But I think it is meant for large organisations.

 

How would you classify your organisation’s take on Activity Based Costing?

Already using Activity Based Costing

Intend to move to Activity Based Costing soon

Have tried activity based costing but it did not work

Have not thought about Activity Based Costing

Are not aware of activity based costing

On the basis of the answer to 8 above seek further information as:

Already using Activity Based Costing

 

Since when have you been using Activity Based Costing?

Why did you move to Activity Based Costing?

Who proposed Activity Based Costing to the organisation?

How has your organisation benefited from Activity Based Costing?

How did you make the transition?

Since when have you been using Activity Based Costing?

Do you have any past experience with the costing methodology?

Did you invest in external expertise?

Did you invest in any software for Activity Based Costing?

Are you facing any problems in implementation of Activity Based Costing?

How do you mitigate the problems?

Any other thoughts?

Intend To Move

 

Why do you need to move to Activity Based Costing?

How will your organisation benefit from Activity Based Costing?

How do you propose to move?

Within what period will you be doing that?

Will you be investing in external expertise?

Will you be investing in any software for Activity Based Costing?

Do you have any past experience with the costing methodology?

Are you anticipating any problems in implementation of Activity Based Costing?

How are you planning to mitigate the problems?

Any other thoughts?

Tried and Rejected

 

What is the first thing that comes to your mind when you think about proposing Activity Based Costing for your organisation?

When did you try Activity Based Costing?

How did you make the transition?

Do you have any past experience with the costing methodology?

Why did your organisation reject it?

What were the specific problems based by the organisation?#p#分页标题#e#

Will you be reconsidering Activity Based Costing again? If yes, when?

Did you invest in external expertise?

Did you invest in any software for Activity Based Costing?

Do you think you would have been better off if you had / had not invested in external expertise and / or software?

Any other thoughts?

Not Considered

 

What is the first thing that comes to your mind when you think about proposing Activity Based Costing for your organisation?

Too much of effort and expense. A company as small as my company cannot afford the six figure fee one is required to pay to consultants. And then there is a software we will need to buy and that too costs a fortune. I would rather propose my company invest in technologically advanced machine than ABC

 

Are you convinced about the benefits of moving on to Activity Based Costing?

Yes! I am aware of the benefits. But I think the benefits are more relevant for large organisations. For small organisations the costs outweigh the benefits

 

What is preventing you from considering Activity Based Costing?

Money

 

Do you think your organisation is too small for Activity Based Costing?

Yes

 

Will you be considering moving to Activity Based Costing in the future?

No