Activity-Based Costing in the Service Sector: The Buckeye National Bank

2001 ◽  
Vol 16 (3) ◽  
pp. 381-408 ◽  
Author(s):  
Linda Smith Bamber ◽  
K. E. Hughes
Keyword(s):  
Business Strategy ◽  
Service Sector ◽  
Strategic Decision ◽  
Business Strategies ◽  
Base System ◽  
Activity Based Costing ◽  
Strategic Decisions ◽  
Cost Information ◽  
Traditional System ◽  
National Bank

The U.S. Bureau of the Census projects that by 2006, the service sector will employ 74 percent of the workforce. This case illustrates why a major segment of the service sector—banks—needs accurate cost information to make strategic decisions, and how more refined accounting systems help fulfill this need. Buckeye National Bank is a hypothetical bank that has suffered falling profits despite a shift in customer base toward retail customers, which the current information system reports are more profitable than business customers. Following a step-by-step approach, you will develop the Bank's average cost of serving a retail customer account and a business customer account, under (1) the Bank's traditional single allocation base system, and (2) a (pilot test) activity-based costing system. You will analyze these results to determine how and why costs reported by the activity-based system differ from the costs reported by the traditional system, and what this difference means for the Bank's business strategy. Finally, you will consider how the Bank's managers can use the new, more refined activity-based cost data in strategic decision making, including controlling costs and developing more profitable business strategies.

scholarly journals Activity-based costing as an information basis for an efficient strategic management process

2013 ◽  
Vol 58 (197) ◽  
pp. 95-119
Author(s):  
Djordje Kalicanin ◽  
Vladan Knezevic
Keyword(s):  
Balanced Scorecard ◽  
Low Cost ◽  
Activity Based Costing ◽  
Strategic Decisions ◽  
Cost Information ◽  
Monitoring Cost ◽  
Cost Behaviour ◽  
Basic Characteristics ◽  
A Company ◽  
Information Basis

Activity-based costing (ABC) provides an information basis for monitoring and controlling one of two possible sources of competitive advantage, low-cost production and lowcost distribution. On the basis of cost information about particular processes and activities, management may determine their contribution to the success of a company, and may decide to transfer certain processes and activities to another company. Accuracy of cost information is conditioned by finding an adequate relation between overhead costs and cost objects, identifying and tracing cost drivers and output measures of activities, and by monitoring cost behaviour of different levels of a product. Basic characteristics of the ABC approach, such as more accurate cost price accounting of objects, focusing on process and activity output (rather than only on resource consumption) and on understanding and interpretation of cost structure (rather than on cost measurement), enable managers to estimate and control future costs more reliably. Thus the ABC methodology provides a foundation for cost tracing, analysis, and management, which entails making quality and accurate operative and strategic decisions as a basis for the longterm orientation of a company. ABC is also complementary to the widely accepted technique of strategic planning and strategy implementation known as Balanced Scorecard (BSC).

A Comparative Analysis of Activity-Based Costing and Traditional Costing Systems

2012 ◽  
pp. 1429-1440
Author(s):  
Khaled Samaha ◽  
Sara Abdallah
Keyword(s):  
Cost Accounting ◽  
Activity Based Costing ◽  
Strategic Decisions ◽  
Cost Information ◽  
Accounting Systems ◽  
Organizational Environments ◽  
Corporate Commitment ◽  
Traditional Costing ◽  
Abc Method ◽  
Manufacturing Organization

Today, organizational environments are increasingly characterized by an expanding use of advanced technologies. A company’s management accounting system should capture the underlying technology, be consistent with corporate commitment to total quality and increased automation, and promote its efforts to compete on the basis of cost, quality, and lead time. However, the recent literature reveals that traditional cost accounting systems systematically introduce serious product cost distortions, which lead to inappropriate strategic decisions. Activity-Based Costing (ABC) represents an alternative paradigm that is giving more accurate and traceable cost information. The objective of this case is to illustrate the application of ABC method in a single manufacturing organization operating in the metal industry and to compare the results of ABC with volume based costing (traditional costing) method. The results of the application highlight the weak points of volume based costing which assigns factory overhead costs using direct labor-hours or machine-hours as a cost driver. As a result, volume-based costing under-costs low-volume product (i.e. products requiring fewer direct labor hours in total), while it over-costs high-volume products (i.e. products requiring more direct labor-hours in total), and thus, a product is subsidized at the expense of others. In cost accounting this is called cross-subsidization. However, activity-based costing traces overhead consumption by each product and thus provides a more accurate per-unit overhead cost.

A Comparative Analysis of Activity-Based Costing and Traditional Costing Systems

2011 ◽  
pp. 41-53
Author(s):  
Khaled Samaha ◽  
Sara Abdallah
Keyword(s):  
Cost Accounting ◽  
Activity Based Costing ◽  
Strategic Decisions ◽  
Cost Information ◽  
Accounting Systems ◽  
Organizational Environments ◽  
Corporate Commitment ◽  
Traditional Costing ◽  
Abc Method ◽  
Manufacturing Organization

Today, organizational environments are increasingly characterized by an expanding use of advanced technologies. A company’s management accounting system should capture the underlying technology, be consistent with corporate commitment to total quality and increased automation, and promote its efforts to compete on the basis of cost, quality, and lead time. However, the recent literature reveals that traditional cost accounting systems systematically introduce serious product cost distortions, which lead to inappropriate strategic decisions. Activity-Based Costing (ABC) represents an alternative paradigm that is giving more accurate and traceable cost information. The objective of this case is to illustrate the application of ABC method in a single manufacturing organization operating in the metal industry and to compare the results of ABC with volume based costing (traditional costing) method. The results of the application highlight the weak points of volume based costing which assigns factory overhead costs using direct labor-hours or machine-hours as a cost driver. As a result, volume-based costing under-costs low-volume product (i.e. products requiring fewer direct labor hours in total), while it over-costs high-volume products (i.e. products requiring more direct labor-hours in total), and thus, a product is subsidized at the expense of others. In cost accounting this is called cross-subsidization. However, activity-based costing traces overhead consumption by each product and thus provides a more accurate per-unit overhead cost.

scholarly journals Activity Based Costing (ABC): Is It a Tool for Company to Achieve Competitive Advantage?

2015 ◽  
Vol 7 (12) ◽  
pp. 275 ◽  
Author(s):  
Desti Kannaiah
Keyword(s):  
Competitive Advantage ◽  
Management Accounting ◽  
Indirect Costs ◽  
Strategic Decision ◽  
Work Place ◽  
Activity Based Costing ◽  
Labor Costs ◽  
Cost Information ◽  
Influential Book ◽  
Product Costs

<p>Most of the companies today have no idea what their products cost them to make. Usually companies think they do know but unfortunately they are not correct. This misunderstanding has led many business organizations to make decisions that are bad to the business. They might abandon profitable products in favor of products that are losing money. However, the companies’ cost information just does not help! Generally managers receive cost information that is misleading and harmful, and make them do the wrong things in their work place.</p><p>This damaging information comes from full absorption costing (both fixed and variable costs) of calculating total product costs. The costing system calculates product costs by allocating a portion of the overhead or indirect costs to each products being manufactured. The amount of the overhead cost allocated is based on the amount of direct hours or direct labor costs required to make the product. This method of allocating is a good approach of allocating overheads many years ago when direct labor was the largest portion of cost required to make a product and when overheads were small.</p><p>The problems associated with this allocation methods were highlighted in the late 1980s with the publication of the influential book “<em>Relevance Lost; the Rise and Fall of Management Accounting</em>” by Tom Johnson and Bob Kaplan. Johnson and Kaplan showed that the historical development of cost and management accounting has given rise to inappropriate methods of allocating overhead costs. These methods of allocation lead to cost distortion. This resulted in managers making the wrong strategic decision. The overall objective of this study is to investigate and assess how ABC provides the company with additional competitive edge to compete in the globalization environment.</p>The principle of activity-based costing has been a much talked about tools in the 1980s and 1990s. But is ABC really the strategic tool to achieve competitive advantage as expected? How the companies should approach the implementation of ABC in order to achieve the required results. What the companies should expect from the ABC? What is the future of ABC?

scholarly journals FUNCTIONAL AND INSTRUMENTAL APPROACHES TO IDENTIFICATION OF THE BENCHMARKING STRATEGY OF CONSTRUCTION COMPANIES

2021 ◽  
pp. 150-160
Author(s):  
Maksym Malashkin ◽  
Dmуtrо Rуzhаkov ◽  
Ilya Kushnir ◽  
Iryna Druzhynina ◽  
Anatoliy Vakolyuk ◽  
...  
Keyword(s):  
Corporate Culture ◽  
Management System ◽  
Central Place ◽  
Global Market ◽  
Strategic Decision ◽  
Business Strategies ◽  
Strategic Decisions ◽  
Management Tools ◽  
Construction Companies ◽  
Effective Organization

In the conditions of turbulent environment, globalization of economic processes, highly competitive market, limited resources, the priority tasks for domestic enterprises are: search for new factors to increase competitiveness; improving and more active use of marketing management tools, and in particular strengthening the importance of its analytical function in strategic decision-making. The solution to this problem is associated with the development and implementation of strategies for active innovative development of enterprises, where the central place should be given to strategic benchmarking, in order to study and apply best practices. It, as the most relevant tool of strategic management, raises research to a qualitatively new level, focuses on anticipating the development of the object of management. Integrating into the management system and corporate culture of the enterprise, strategic benchmarking allows you to set goals that meet the requirements of the global market, to identify the best strategic decisions and business strategies to systematically improve its activities. The need and possibility to use the advanced world and domestic achievements is an urgent need of Ukrainian business. In this regard, the study of methodological approaches to the effective organization of strategic benchmarking and the creation of applied developments that facilitate its implementation in the management system of domestic enterprises, is timely and relevant.

scholarly journals A NOVEL INTEGRATED MCDM-SWOT-TOWS MODEL FOR THE STRATEGIC DECISION ANALYSIS IN TRANSPORTATION COMPANY

2021 ◽  
Vol 19 (3) ◽  
pp. 401
Author(s):  
Irena Đalić ◽  
Željko Stević ◽  
Jovo Ateljević ◽  
Zenonas Turskis ◽  
Edmundas Kazimieras Zavadskas ◽  
...  
Keyword(s):  
Swot Analysis ◽  
Small And Medium Enterprises ◽  
Strategic Decision ◽  
Business Strategies ◽  
The European Union ◽  
Strategic Decisions ◽  
Business Decision ◽  
Criteria Importance ◽  
The Right ◽  
Medium Enterprises

In this paper, based on the Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis, a matrix of Threats, Opportunities, Weaknesses and Strengths (TOWS) was formed. It represents possible business strategies of the transport company. To choose the right plan, a model based on the integration of Fuzzy PIvot Pairwise RElative Criteria Importance Assessment (fuzzy PIPRECIA), Full Consistency Method (FUCOM) and Measurement Alternatives and Ranking according to COmpromise Solution (MARCOS) methods, has been formed. A case study was conducted in the transport company from Bosnia and Herzegovina which provides services on the domestic and the European Union market for 20 years and belongs to a group of small and medium enterprises (SMEs). The SWOT analysis in this transport company was the basis for forming the TOWS matrix, which represents a set of possible business strategies. These strategies are the basis for developing five basic alternatives. The transport company should choose the best one of them for future business. The research focuses on forming a model for choosing the best strategy by which the transport company seeks to improve its business. Decision-making (DM) is not a straightforward sequence of operations, so the harmonization of methods as well as the verification of their results, are essential in the research. This model is applicable in SMEs that make these and similar decisions. Using this model, companies can adjust their business policies to the results of the model and achieve better business results. This research is the first that allows the use of such a model in making strategic decisions.

Understanding how the contextual variables influence political behaviour in strategic decision-making

2014 ◽  
Vol 7 (3) ◽  
pp. 226-250 ◽  
Author(s):  
Said Elbanna ◽  
Ioannis C. Thanos ◽  
Vassilis M. Papadakis
Keyword(s):  
Decision Making ◽  
Strategic Decision ◽  
Strategic Decision Making ◽  
Strategic Decisions ◽  
Empirical Examination ◽  
Content Type ◽  
Political Behaviour ◽  
Practitioner Education ◽  
The Impact ◽  
Practical Implications

Purpose – The purpose of this paper is to enhance the knowledge of the antecedents of political behaviour. Whereas political behaviour in strategic decision-making (SDM) has received sustained interest in the literature, empirical examination of its antecedents has been meagre. Design/methodology/approach – The authors conducted a constructive replication to examine the impact of three layers of context, namely, decision, firm and environment, on political behaviour. In Study 1, Greece, we gathered data on 143 strategic decisions, while in Study 2, Egypt, we collected data on 169 strategic decisions. Findings – The evidence suggests that both decision-specific and firm factors act as antecedents to political behaviour, while environmental factors do not. Practical implications – The findings support enhanced practitioner education regarding political behaviour and provide practitioners with a place from which to start by identifying the factors which might influence the occurrence of political behaviour in SDM. Originality/value – The paper fills important gaps in the existing research on the influence of context on political behaviour and delineates interesting areas for further research.

scholarly journals Optimising pasture and grazing management decisions on the Cicerone Project farmlets over variable time horizons

2013 ◽  
Vol 53 (8) ◽  
pp. 796 ◽  
Author(s):  
Karl Behrendt ◽  
Oscar Cacho ◽  
James M. Scott ◽  
Randall Jones
Keyword(s):  
Simulation Model ◽  
Strategic Decision ◽  
Stochastic Dynamic ◽  
Economic Returns ◽  
Strategic Decisions ◽  
Trade Offs ◽  
Using Data ◽  
Time Frames ◽  
The Impact ◽  
Stocking Rates

This study addresses the problem of balancing the trade-offs between the need for animal production, profit, and the goal of achieving persistence of desirable species within grazing systems. The bioeconomic framework applied in this study takes into account the impact of climate risk and the management of pastures and grazing rules on the botanical composition of the pasture resource, a factor that impacts on livestock production and economic returns over time. The framework establishes the links between inputs, the state of the pasture resource and outputs, to identify optimal pasture development strategies. The analysis is based on the application of a dynamic pasture resource development simulation model within a seasonal stochastic dynamic programming framework. This enables the derivation of optimum decisions within complex grazing enterprises, over both short-term tactical (such as grazing rest) and long-term strategic (such as pasture renovation) time frames and under climatic uncertainty. The simulation model is parameterised using data and systems from the Cicerone Project farmlet experiment. Results indicate that the strategic decision of pasture renovation should only be considered when pastures are in a severely degraded state, whereas the tactical use of grazing rest or low stocking rates should be considered as the most profitable means of maintaining adequate proportions of desirable species within a pasture sward. The optimal stocking rates identified reflected a pattern which may best be described as a seasonal saving and consumption cycle. The optimal tactical and strategic decisions at different pasture states, based on biomass and species composition, varies both between seasons and in response to the imposed soil fertility regime. Implications of these findings at the whole-farm level are discussed in the context of the Cicerone Project farmlets.

The relationship between MNCs’ strategies and executive staffing

2017 ◽  
Vol 25 (2) ◽  
pp. 233-250 ◽  
Author(s):  
Sangeetha Lakshman ◽  
C. Lakshman ◽  
Christophe Estay
Keyword(s):  
International Business ◽  
Business Strategy ◽  
Global Strategy ◽  
Business Strategies ◽  
Future Research ◽  
Research Approach ◽  
Global Integration ◽  
Content Type ◽  
Managerial Implications ◽  
The Relationship

Purpose The purpose of this paper is to examine the relationship of business strategies with executive staffing of multinational companies (MNCs). Design/methodology/approach Based on in-depth interviews conducted with top executives of 22 MNCs’, the authors identify important connections between international business strategies and staffing orientation. The authors used the qualitative research approach of building theory from interviews; thus, creating theoretical propositions from empirical evidence. Findings The authors find that when the pressure for global integration is high, MNCs use more parent-country national (PCNs) (ethnocentric staffing) as against the use of host-country managers (HCNs) (polycentric staffing) when this pressure is low. Additionally, MNCs using a global strategy are more likely to use an ethnocentric staffing approach, those using a multi-domestic strategy use a polycentric approach and firms using transnational strategy adopt a mix of ethnocentric and polycentric approaches. Research limitations/implications Although the authors derive theoretical patterns based on rich qualitative data, their sample is relatively small and comprises mostly of French MNCs. Generalizability to a broader context is limited. However, the authors’ findings have critical implications for future research. Practical implications The authors’ findings provide critical managerial implications for MNCs in matching their HR strategies with business strategies. These are important for effective strategy implementation. Originality/value Although MNC staffing orientations have been studied for a long time, their relationship to international business strategies is still not clearly understood. The authors contribute to the literature by investigating the relationship between MNCs’ business strategy types with staffing orientations.

Employee Engagement: A Study on Perception of Teachers in Higher Education

2021 ◽  
pp. 286-290
Author(s):  
Ashwini Kundar ◽  
Pakkeerappa P.
Keyword(s):  
Higher Education ◽  
Employee Engagement ◽  
Service Sector ◽  
Education Level ◽  
Faculty Members ◽  
Primary Sources ◽  
Business Strategies ◽  
Know How ◽  
Overall Performance

Employee engagement is an important factor to be considered while developing any kind of business strategies and it plays an important role in improving overall performance of an organisation. As the importance of employee engagement in service sector has increased to a great extent now, it becomes necessary to know how it works for the benefit of organisation and how it contributes for the success of the organisation. The main objective of the study is to know the commitment and engagement of teachers at higher education level. It is very much important to know the level of commitment and engagement of teachers or faculty members that leads to development of the students and also the institution. The study is empirical in nature and the data is collected from primary sources. The findings suggest that there is a higher-level engagement and commitment among the faculty members for the organisations they work for. Higher level of engagement leads to the development of the institution.

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