To empirically test for an impact on profit performance when activity-based costing (ABC) is used in companies with customer service and low-price strategies. We also investigate whether the profit impact of ABC usage is affected by higher-quality information systems.
We find a positive impact on profit performance when ABC is used by companies with customer service as a strategic priority but not when ABC is used by companies with lower emphasis on customer service. For companies emphasizing low-price strategies, we find a positive impact on profit performance, especially when ABC is used together with high-quality information systems.
This study develops a method of measuring strategic priorities of a firm. It divides firms into strategy groups based on their degree of emphasis on three strategic priorities: low price, flexibility, and customer service.
Identifies certain contexts when ABC is especially beneficial.
Originality/value of paper
If the use of ABC information leads to better strategic and operational decisions, firm performance should improve. However, prior research on the impact of ABC on firm performance has found little to no connection and usually only when it is used with other practices. This is the first study to find an impact on profit performance for firms with customer service and low-price strategies and high-quality information systems.
We appreciate the support of the Institute of Management Accountants and the research assistance of Amber Webb and Matt Sommers. We also wish to thank Anne Lillis, Taylor Randall, Monte Swain, and Sally Widener and workshop participants at the University of Utah, the University of Richmond, and Brigham Young University for helpful comments on previous versions of this paper.
Krumwiede, K.R. and Charles, S.L. (2014), "The Use of Activity-based Costing with Competitive Strategies: Impact on Firm Performance", Advances in Management Accounting (Advances in Management Accounting, Vol. 23), Emerald Group Publishing Limited, Bingley, pp. 113-148. https://doi.org/10.1108/S1474-787120140000023004
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