Positive Investigation Into The Use Of ABC Accounting Accounting Essay


Many companies are confronting a existent competition in the planetary market today. This is because of the fact that some companies are bring forthing high quality merchandises with low costs. Many organisational directors attempted in following a cost system that shall give accurate information and cost of each merchandise so that directors can put to death right determinations at a given clip. ( Johnson and Kaplan, 1987 ; Johnson, 1988 ; 1992 ) .

Presents, traditional cost systems became unpopular among companies, since these cost systems were designed long clip ago for different fortunes. For illustration, companies used to bring forth a little figure of merchandises and indirect cost ( overhead ) was rather little, compared to the entire cost at that clip operating expense did non do any jobs to the directors. On the other manus, in the 1980s many companies started produce different assortment of merchandises and indirect cost started to play an of import function. Therefore, the traditional cost systems are no longer desirable by directors. Directors started to believe to alter these systems after recognizing that these systems are non dependable for managerial intents any longer ( Drury, 2000 ) .

We will write a custom essay sample on
Positive Investigation Into The Use Of ABC Accounting Accounting Essay
or any similar topic only for you
Order now

During the 1980 ‘s a new cost system started to be developed in the United States. The system was named Activity Based Costing ( ABC ) ( Jones and Dugdale, 2002 ) . It was argued by Drury ( 2000 ) that this system is guarantees a better allotment for indirect costs. It besides provides accurate information sing the merchandises ‘ costs. Directors can utilize this information in doing determinations and aid in be aftering the organisation ‘s hereafter.

Analyzing the construct of the ABC system can be related to the developed states. There are three classs in analyzing the ABC system. The first class efforts to give the advantages and drawbacks of ABC and depict the acceptance of ABC ( Cooper, 1988, 1989 ; Kaplan and Atkinson, 1989 ) . The 2nd class uses a instance survey attack to demo a existent usage of ABC in different companies ( Lee, 1990 ; Fisher et al,1990 ) . The 3rd class goes farther to cover the ABC patterns in developed states ( Green and Amenkhienan, 1992 cited in Al-basteki and Ramadan,1997 ) . There are assorted surveies being carried out sing the ABC system. However, there are really few studied that is sing the system ‘s effects on the returns of assets.

This research aims to accommodate a positive doctrine with respects to the probe of the ABC system ‘s effects on the returns of assets. The study attack shall be used in carry oning the said probe. The chief purpose of the research worker is to look into the consequence of ABC system on the assets returns on organisation. Second, this paper besides aims to exemplify the features of these organisations in order to assist other organisations in accommodating the same system. The result of this paper shall be the comparative model for such. Other organisations might see this system if the benefits are good presented. In add-on, directors can make up one’s mind whether ABC is a suited cost system for their organisations after sing the existent acceptances. The execution of ABC requires puting a batch of many and needs some alterations inside the organisation itself. So, understanding the features would assist the directors to find the benefits of ABC for their organisations.

Evidence for the Use of a Survey Method in Relevance to Prior Research

Several old surveies have used the study method of informations aggregation in order to look into the adaptation of ABC by organisations and its effects. In this respect, presentation of old surveies for this research shall be presented under the class of assorted surveies merely.

Assorted Related Studies

1. The ABC System

Kaplan and Cooper ( 1988 ) developed more effectual option to traditional theoretical account of cost computation. The method promoted by the two research workers gives more precise cost step because it indirectly traces costs more carefully sing assorted sorts of consumed activities. However, the common accounting method often used assigned overhead merchandise cost by using related volume allotment such as hours of labour, direct cost of labour, direct cost of stuffs, public-service corporation hours, etc. In fortunes where at that place immense diversified merchandises, or there is a increased mechanization degree, the deformation of operating expenses will be critical factor ( Brimson ( 1991 ) .

The major advantage of this method is based on the truth and precise cost calculation, specifically in which diverseness of merchandise is critical and when the indirect costs is non traceable straight to the services or merchandises. It besides offers of import proportions of its general costs. Additionally, ABC besides facilitates a compound degree analysis of cost by specifying the relevancy between activities and merchandises. Several surveies sing the ABC execution exists in different Fieldss ( Cropper and Cook, 2000. These surveies concluded that ABC is an effectual theoretical account of accounting and have the capacity to derive more valid and precise informations sing the construction of cost activities based on the director ‘s determination on the best drivers and specifying activities. However, it is ever assumed that there is no by and large accepted accounting system best suited to all fortunes of organisations ( Emmanuel, 1990 ) .

Many old surveies ( Roberts and Sylvester 1996 ) suggested that organisations adopted the direction enterprises such as ABC, JIT and TQM to obtain benefits that straight or indirectly impact fiscal public presentation steps. From the theoretical position many groundss sing the benefits of ABC have been provided ( Barnes 1991 ; Brimson 1991 ) . Empirically researches on ABC have by and large consisted of patterning the factors that lead to successful ABC system. Success has been defined as ‘use for determination devising ‘ ( Innes and Mitchell 1995 ; Krumwiede 1998 ) , satisfaction with the costing system, perceived fiscal benefits or non fiscal benefits ( Krumwiede 1998 ; McGowan, 1998 ) . Besides some researches such as Cagwin and Bouwman ( 2000 ) provided grounds that ABC improves fiscal public presentation. A local survey done by ( Khasharmeh 2002 ) about the pattern of ABC in Jordanian fabrication companies in 2002 revealed that merely 10 % of Jordanian fabrication companies use the ABC system. It besides revealed that 75 % of the respondents agree and 25 % strongly agree that the usage of ABC improves the company ‘s public presentation in general.

2. Related Surveies

In a survey conducted by Tsai and Hsu ( 1994 ) , it was found out that execution of ABC in a hot spring hostel can get dependable and clear information sing the activities and its proportion costs. Directors can besides use the informations derived from ABC execution for merchandise and pricing determination mix ( Tsai, 1994 ) , designs of merchandises, analysis of net incomes, etc. The ABC and traditional costing comparing presents the appropriate and practical application is regarded to ABC as it shows accurate information for pricing and direction determinations.

Granof, Platt and Vaysman ( 2000 ) conducted a instance survey sing the application of the ABC system in certain sections of higher instruction establishments. It was found out that the primary benefit of the ABC system is that it is an betterment upon a system that is already equal. It besides gives the constitution construction. It besides gives true management-oriented system for an organisation. It was besides found out that a system must be flexible in order for it to be successful. Rigid allotment regulations can non readily be imposed upon organisations, like universities, characterized by decentralised direction systems. Finally, this method assigned costs to unmeasured an factor which antecedently provides a full cost step of activities and plan sing disbursement determinations.

Necula ( 2009 ) argues the usage of ABC in a Entire Quality Management ( TQM ) Environment. In her survey, it was concluded that ABC allows directors to accurately track costs and find the designation of inordinate resources and therefore back up the execution of TQM and other quality betterment plans processes. Directors can utilize information gathered by ABC analysis, Pareto analysis taking to the cost drivers ‘ analysis of cardinal cost, an of import ingredient in most TQM enterprises. Model is a trial in add-on to the successful execution of TQM.

ABC method can be associated with acceptance of improved concern procedures, activities included in TQM plans ( Ittner & A ; Larcker, 1997, Anderson et al. , 2002 ) . Furthermore Datar and Gupta ( 1994 ) talk about increasing costs and better quality through increased cost specification mistakes in mensurating the frequence of merchandise costs. Banker and Potter ( 1993 ) and Christensen and Demski ( 1997 ) ABC method mentioned ability to bring forth accurate cost estimations, and other costs that depend on factors such as market fight and quality of information engineering substructure of the organisation.

Roztocki and Schultz conducted a web based study sing the execution and acceptance of the ABC system. The consequences showed that acquaintance with and acceptance of ABC was found to be comparable across both the fabrication and service sectors. Service houses that provide multiple services that use overhead at differing rates can profit from the usage of ABC, as can fabricate houses with multiple merchandises that place different demands on operating expense. In this survey, acceptance of ABC was found to be is significantly related to house size, with larger houses being more likely to follow this method than smaller houses. These consequences may reflect the fact that larger houses are more likely to hold the diverse mix of merchandises or services that makes the usage of ABC advantageous. Besides, smaller houses may be less likely to hold specialized staff that are familiar with this method. Accountants and directors working for larger houses were more likely to be familiar with ABC than those working for smaller houses. As little houses develop greater acquaintance with ABC, increased execution would be expected. In add-on, acceptance of ABC by smaller companies might be supported by execution processs customized to their peculiar demands.

Malmi ( 1997 ) conducted a research survey in order to explicate whys some ABC system fails. In the consequences, it was explained that some of the alleged ABC failures may non hold been failures at all. Alternatively, these supposed failures may ensue from the reasonably narrow determination doing perspective adopted to measure ABC undertakings in houses. Consequently, treatment on ABC success and failure should admit utilizations of accounting other than the presently dominant determination doing position. The new ABC system was non in consonant rhyme with the local civilization. Routines and firm-level establishments, and organisation civilization, were suggested to be worthy of consideration in explicating opposition to ABC, and ABC failure. The practical deduction of this survey hinges on the impression that although the opposition may arise from assorted beginnings, where beginnings appear basically structural, they are improbable to be dealt with through execution based schemes.

The Research Philosophy

Beginnings of the Positive Theory

The rationalist theory was introduced in 1853 by the Gallic philosopher Augusto Comte. Harmonizing to him, “ all good minds have repeated, since Bacon ‘s clip, that that there can be no existent cognition but that which is based on ascertained facts ” . Comte has gained attending with respects to many issues by this statement. The first issue is that world is nonsubjective and external to some point, and this is what is called as ontological premise. The 2nd issue is that cognition requires the observation of world, therefore, this makes cognition of import ( cited in Easterby-Smith et al. , 2006 ) . The positive attack gained credence in the United Kingdom and United States since the premises of this theory are apprehensible ( Delanty, 2003 ) . The chief premises of positivism are independency, value-freedom, causality, hypothesis and tax write-off, operationalization, reductionism, generalisation, and transverse sectional analysis. Independence should hold the research worker to be wholly independent from the world when making the observations. Value-freedom should hold the research worker take some aims of the research, and when a subject is selected, the research worker should non follow the involvements of the people. Causality focuses on the chief mark of societal scientific discipline which is to supply some accounts for the human behaviour. Observations will be determined whether the hypothesis set by the research workers is right or incorrect. Operationalization ensures that all facts are measured quantitatively, and that the research worker should operationalize all the constructs consequently. Reductionism implies that any sort of job should be simplified in order to give better apprehension to the research worker ; afterwards, the job should be dealt with as a whole. Generalization ensures that the research worker shall be choosing sufficient samples so that the findings in the population can be generalized. The cross sectional analysis can do a comparing through the sample and can demo regularities.

2. Basic Concepts of the Theory

The ontology of the positive theory is the universe of aim. It is wholly independent from human existences. The positive individual assumes that the universe is external and nonsubjective, and that people have no any influence on the societal world ( Chua, 1986 ) . Epistemology, it is concluded that all the premises are separate from theories, in other words positive research worker tend to prove hypotheses and after that he/she can infer future events ( ibid. ) . Positive research worker can be inductive or deductive. Initiation is a procedure get downing from observations in order to develop theories. In contrast, tax write-off is a procedure where you start from theory ( hypotheses ) , so the research worker will do farther observations to guarantee that the theories meet the findings ( Drever, 2007 ) .

Basically epistemology concerns itself with how cognition is accepted, how we know what we know. It is about how we can set up which truths are both equal and legitimate. Western epistemologists have frequently distinguished between two types of cognition which is gained through ground entirely and that which is gained through application and experience. The epistemology that will be adapted in this research is the cognition gained in the country of commercial contract through application of jurisprudence and the experience of legal practicians.

The cardinal component in any doctrine is its epistemology which refers to the theory of cognition and the cardinal epistemic inquiry of how we know what we know. In epistemology one strives to bring forth true and justified descriptions and accounts of the universe. Associated with epistemology is the philosophical model of ontology, which Johnston ( 1986 ) describes as the nature of being, being and world, or ‘what can be known ‘ . The mode in which we answer the inquiry of ‘what exists ‘ determines what can be accepted as fact and therefore is the footing of every probe. The divergent epistemologies and ontology ‘s together inform the methodological analysiss for any piece of research, which, in bend, must be appropriate to the inquiries or jobs that prompt the research endeavor.

3. Relevance to the Current Research

The research worker will be given to be inductive in this paper. When this research is finished, the research worker will be able to put out theories after relevant observations have been made. The chief ground in taking this theory is that other related surveies have used this theory every bit good. Other surveies were inductive while some are deductive. Positive theory seems to be suited for accounting direction research and for this peculiar survey.

The Research Design

1. The Survey Method

The study method considered as on of the most popular methods in the societal scientific discipline. Survey can be used to analyze features of sociological variables. Accounting studies uses to roll up information on different topics for illustration, measuring a new public presentation measuring system, or exemplify the workers sentiment about a new cost system. For that ground studies methods have used often in direction accounting research ( Hoque, 2006 ) .

Survey methods have some underling premise, the first premise is that the respondents consider as the most dependable information beginning. The 2nd premise is that some perceptual experiences of world might be incorrect due the fact that, accounts of world are stronger than the world since, respondents can move on the accounts. The 3rd premise is that all the perceptual experiences “ can be demonstrated to be linked to results of involvement to organisation ” ( ibid. ) . Theses sentiment and behaviours can hold impact on the organisation. Researchers argue that this premise can be defended. Ajzen and Fishbein ( 1975 ) asserted that the person ‘s forecaster with respects to his behaviour is measured through his purpose to put to death that specific behaviour.

Research workers will obtain some benefits, if they agree with the premises above and might happen valuable information. On the other manus, to make a high quality of fidelity research workers must get the better of any barriers in the inquiries and to make so, researches should plan an appropriate inquiries for the respondents in order to measure the research inquiry adequately and besides to measure the phenomenon right ( Hoque, 2006 ) .

2. Planing a Survey

The chief mark of studies for direction accounting is the rating of the samples certain sentiment every bit good as the measuring of their behaviour. Surveies can be used for either researching issues or corroborating some issues. Exploratory study is used in detecting basic information sing the construct or the purpose to be familiar with the construct. On the other manus, the confirmatory study is being used in asseverating some theories ( Hoque 2006 ) .

3. Data Collection

Data will be collected by posting questionnaires to the selected sample companies on this research. Secondary informations will be used every bit good.

A. The Questionnaire

The research worker will use a study based on a postal questionnaire. This will be divided into three parts. The first portion will cover the company ‘s basic information such as its name, length of stay in the market, figure of subdivisions, if any, and figure of employees. The 2nd portion shall cover certain issues such as the methods presently being used by the company in delegating indirect costs. The last portion shall so cover the extent of using the ABC system, the grounds behind for the application of the same, and the grounds why the system is non rejected.

A pilot trial shall be implemented in order to guarantee that the inquiries are all applicable for the respondents. Robson ( 2002 ) emphasized that a pilot trial is a little version of the existent thing. It is the try-out of what the research worker is suggesting so that the feasibleness can be checked. A little population will be tested by replying the inquiries. The feedback from the pilot trial shall be used by the research worker if there is a demand in modifying the questionnaire.

The research worker selected nutrient companies in Libya. These companies shall run into certain criterions in order to be considered. The organisation should be listed in the Ministry of Industry of Libya. Second, the entire figure of employees shall be at least 100. Finally, the company shall hold at least 10 old ages of experience in the nutrient industry. The research worker programs in posting 500 questionnaires, after which, the research worker shall choose the appropriate samples as per the mentioned standards.

B. Secondary Data

Most research workers ignore the benefits of using secondary informations for research. It is hence imperative in utilizing secondary as an initial measure in carry oning research. Looking for reverent researches that are related to the research inquiries before roll uping any other information is really of import. The most of import beginnings in roll uping secondary informations are authorities surveies and studies ; published stuffs such as text editions, diaries and authorities publications ( Saunders et al 2007 ) .

Rejecting Other Rejected Research Theories

1. Interpretive Theory

The interpretative theory was used by Johann Fichte between 1762 and 1814. However, the fact that the positive theory was more popular so, research workers neglected its usage. During the 1920 ‘s, this theory was redeveloped by Karl Mannheim and Alfred Schutz ( Laughlin 1995 ) . The ontology of this theory assumes that societal world created by people ‘s interactions. Interpretative theory does non alter the position quo ; it is merely gives readings of the world. Interpretative research workers tend to utilize qualitative methods when they study any phenomena, they use instance survey more frequently. It is obvious that interpretative attack is non relevant to the research inquiry of this survey ; since the research worker needs to be portion of the survey so he/she will non be independent and might impact the result of the research ( Chua, 1986 ) .

2. Critical Theory

Max Horkheimer became the leader of the Social Research Instituion in the 1930 ‘s. During this clip, the critical theory has been popular. The chief purpose of critical philosophers is to uncloak the domination in the society by agencies of knocking some phenomena. It is their hope that societal order will reform jobs. It is assumed by this theory that every province has inner potency which is unfilled. It besides assumes that the truth is really much in the procedure of being hammered out and grounded in societal and historical pattern ( Chua 1986 ) .

The methodological analysis of this theoretical account is that it does n’t hold any statistical theoretical account. It besides does n’t utilize any quantitative methods in analysing or roll uping informations. From this point, the research worker rejected the usage of this theory since it is concerned in knocking the phenomena by agencies of historical events. It is evident that this doctrine could non assist this research in replying the set inquiries, since this aims in explicating the phenomena.


The research worker aims in replying the research inquiry by accommodating the positive theory. The research worker shall besides be inductive while carry oning the research. This shall get down with observations and when the research is finished, theories will be set. It is in the strong belief of the research worker to be positive, based on the fact that the rationalist theory makes the research worker to be independent from the population like cultural or political influence. These mentioned influences might impact the findings of the survey. Two chief beginnings of informations will be used, the postal questionnaires and the secondary informations from published plants. Previous surveies have used these methods every bit good. Further, the research worker programs in confer withing related literature foremost in order to understand the jobs related to the research inquiry. This research shall make full a spread in the literature as mentioned. The research worker rejected two other doctrines because these doctrines have other intents and, they would non turn to the inquiry in a proper manner.

The activity-based costing method ( ABC ) shows higher degree of truth sing the cost step as it outlines indirect bing more decidedly.

Granof, Platt and Vaysman ( 2000 ) conducted a instance survey sing the application of the ABC system in certain sections of higher instruction establishments. It was found out that the primary benefit of the ABC system is that it is an betterment upon a system that is already equal. It besides gives the constitution construction. It provides an organisation of a true management-oriented system. It was besides found out that a system must be flexible in order for it to be successful. Rigid regulations allotments can non be imposed readily to different organisations, like universities, characterized by decentralised direction systems. Finally, activity based bing method helps specify fortunes with disbursement determinations lined with its ends and aims.

As the empirical grounds is get downing to roll up sing the use of ABC, there is a clear image that is emerging. ABC has changing benefits to assorted concern units. It is strongly suggests that one facet of the ABC ‘s belongings is the concern units ‘ competitory scheme. This determination has of import deductions in planing and implementing the system, every bit good as others ( Frey and Gordon 1999 ) .


Hi there, would you like to get such a paper? How about receiving a customized one? Check it out