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Article
Publication date: 10 August 2015

Ahmed E. Haroun

The purpose of this paper is to present the use of activity-based costing (ABC) approach as an alternative option to the traditional cost accounting system. The contribution of…

10047

Abstract

Purpose

The purpose of this paper is to present the use of activity-based costing (ABC) approach as an alternative option to the traditional cost accounting system. The contribution of this study is to demonstrate, through a simple example, the application of that costing system in a service (maintenance) industry, i.e. the paper intended to develop a procedure for a cost model that help in calculating any maintenance job cost, to a reasonable degree of accuracy, based on the actual activities performed.

Design/methodology/approach

This research uses a simple example whereby hypothetical activities and cost data of maintaining an injector and a pump, of an internal combustion engine, are used, presented and analyzed based on the use of the developed procedure.

Findings

ABC system provides more accurate cost estimates rather than the traditional “order costing” methods that uses unit-level costs which are variable in relation to change in service volume. Traditional cost methods distort the costs by applying overhead uniformly over different jobs of varied complexities and activities scope. On the other hand, ABC is a useful means to distribute the overhead costs in proportion (fairly) to the actual activities performed in a specific job and, hence, enhance the rationality of decision making, i.e. will not distort the accounting information used for cost reduction, pricing, and evaluation matters. The results obtained from the analysis showed that allocating costs to the maintained injector decreased from $83.55 to $71.95 and, finally, to $67.57 when using the workshop-wide, two-stage and ABC overhead allocation methods, respectively; while that of the pump increased from $298.90 to $340.34 and, finally, to $359.48 when using the same three methods, in the same order, respectively. The result is quite fair when considering the complexity of the fuel pump, in terms of design and maintenance, when compared with the injector. Notice that using volume to allocate overhead costs results in over costing high-volume products, e.g. injectors (simple in terms of design and operation) and under costing low-volume products, e.g. pumps (more complex in terms of design and operation). The paper recommends to use ABC as a more accurate and fair method when charging maintenance job orders based on the analysis of costing two maintained items in the same premise while consuming different overhead resources.

Practical implications

This study attempts to analyze different methods to calculate a specific corrective maintenance job order. It strives to remedy the drawbacks of the traditional overhead costing of a job order when using principles related to the size of service, such as the direct labor cost/hours, as an allocation base. Consequently, the study proposed a new costing method, i.e. application of ABC. The traditional costing approach is considered by many firms as the best costing method. Nevertheless, it allocates overhead cost over job performed uniformly (equally) not differentiating between the complexity of the job and variety of the activities performed, e.g. using the same allocation base for “oil change” and “fuel pump adjustment” activities. So, ABC prevents cost distortions (unfairness) that could not be prevented by traditional cost accounting system. The author believes that the method presented in this paper will provide a useful management tool for costing maintenance jobs based on the appropriate selected activity drivers in maintenance workshops. The method could be applied for costing maintenance activities in maintenance of all industrial sectors.

Originality/value

The use of traditional costing method has proven to be distorted by applying overhead uniformly over different jobs of varied complexities and activities scope. In this paper the authors strive to present an effective costing alternative that outperforms the traditional ones with regard to overhead allocation. The paper aims to find reliable and fair maintenance costing method, i.e. to find out the relationships between maintenance activities and cost drivers. Although, ABC is widely used in manufacturing industry, no application or current research has presented an applicable thorough worked-out example, with the exception, to the author’s knowledge, of one in the aeronautical industry, to implement ABC method in maintenance industry. The importance of using this method comes from the fact that it provides, relatively, accurate and fair maintenance bills that provide customer satisfaction and firm good image. Hence, the paper is relevant in this respect and intended to contribute to the practice of maintenance management.

Details

Journal of Quality in Maintenance Engineering, vol. 21 no. 3
Type: Research Article
ISSN: 1355-2511

Keywords

Article
Publication date: 11 July 2016

Rossano Linassi, Anete Alberton and Sidnei Vieira Marinho

This paper aims to examine whether using menu engineering (ME) together with activity-based costing (ABC) for menu analysis provides new insights into true menu profitability. The…

6343

Abstract

Purpose

This paper aims to examine whether using menu engineering (ME) together with activity-based costing (ABC) for menu analysis provides new insights into true menu profitability. The traditional ME approach only uses food costs to determine the contribution margin (CM) of individual menu items. This combined approach uses both food and traceable operating costs to estimate CMs more accurately.

Design/methodology/approach

An improved ME model was developed and tested in an oriental restaurant in Brazil. Direct observation of restaurant activities allowed most costs to be traced (not simply allocated) to individual menu items.

Findings

The results revealed small differences in the rankings between the traditional approach and ABC/ME, demonstrating that the integration of ABC with ME made it to possible to identify increased food-costs and lower CMs for all groups of menu items. The results also show that ABC methods are applicable to an oriental-style restaurant.

Research limitations/implications

Just one restaurant and only 80 per cent of the menu were examined in this study. Future research should apply the model used here to other restaurant types located in different geographical areas to validate the approach.

Practical implications

The results suggest that ME can be improved upon by first assessing variable costs using ABC methods.

Originality/value

This paper combines two different analytic techniques (ME and ABC) into a new approach that reveals the true picture of profit and loss for a menu from a restaurant in Brazil.

Details

International Journal of Contemporary Hospitality Management, vol. 28 no. 7
Type: Research Article
ISSN: 0959-6119

Keywords

Article
Publication date: 1 August 1999

A. Gunasekaran, H.B. Marri and Y.Y. Yusuf

In present day manufacturing organizations, performance measurements play an important role in providing strategic directions and developing corresponding operational policies and…

13696

Abstract

In present day manufacturing organizations, performance measurements play an important role in providing strategic directions and developing corresponding operational policies and methods. One such method is the activity‐based costing (ABC) method which calculates the cost of activities and helps in making decisions on product mix and price for improving the utilization of resources and minimizing the cost of production. Even now some manufacturing organizations employ traditional costing methods depending upon their market forces and characteristics. One of the most important decisions to be made is about the type of costing system that would be suitable for an organization. The role of direct labour in current manufacturing environments has diminished, but at the same time the level of support services has increased. Traditional methods of cost calculation do not take into account this increased complexity and still allocate overhead costs by their diminishing labour base or even do not take into account overhead costs. Hence, there is a need for a more accurate product costing method, viz. ABC. Discusses the application of ABC and some case experiences (for commercial reasons, the original identity of the companies is concealed) with the objective to provide information on whether the system would be applicable and under what circumstances it is better suited for improving the overall operational effectiveness of an organization.

Details

Managerial Auditing Journal, vol. 14 no. 6
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 22 November 2011

Olivier de La Villarmois and Yves Levant

The purpose of this paper is to investigate the processes involved in implementing a full costing method – the unité de valeur ajoutée (UVA) (added value unit) method – as well as…

1602

Abstract

Purpose

The purpose of this paper is to investigate the processes involved in implementing a full costing method – the unité de valeur ajoutée (UVA) (added value unit) method – as well as to explore the uses made of it.

Design/methodology/approach

Firms that adopted the UVA method between 1995 and 2009 were studied by means of semi‐structured interviews with individuals concerned in the firm and with the external consultants. The interviews, which lasted two to three hours, were conducted both during the implementation process and several months later. Secondary data in the form of all the documentation regarding the initial setting up and updating of the method were also collected.

Findings

The main advantages of the UVA method are the fine breakdown of costs, facilitating decision making, and its modest use of resources. Generally, it was adopted by small firms with a “defensive” strategic behaviour. The success of its implementation was largely a result of the strong involvement of management. Nevertheless, it found limited use as a management tool compared to the activity based costing (ABC) method, owing to the small size of the firms that adopted the UVA method.

Originality/value

This research paper is the first to examine the various stages of setting up the UVA method of cost accounting method, by collecting data from users on two occasions, separated by an interval of eight years.

Details

Journal of Applied Accounting Research, vol. 12 no. 3
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 5 October 2010

Paige Vaughn, Carola Raab and Kathleen B. Nelson

The paper aims to examine the activity‐based costing (ABC) method as a feasible and appropriate tool for the casino and hotel industry to apply to support kitchens in order to…

3200

Abstract

Purpose

The paper aims to examine the activity‐based costing (ABC) method as a feasible and appropriate tool for the casino and hotel industry to apply to support kitchens in order to eliminate the monthly allocation of overhead based on variable costs.

Design/methodology/approach

Data were collected at a support kitchen in a Las Vegas casino. These data were analyzed by using ABC methods and establishing ABC costs. ABC methods were compared to traditional allocation methods to determine, first, if allocations could be eliminated entirely; and, secondly, to establish if some outlets would be significantly impacted by the accounting change.

Findings

An ABC approach can be applied to support kitchens and total cost (ABC) can be estimated. This approach allowed the casino to eliminate traditional allocation methods based solely on food cost.

Research limitations/implications

ABC was shown to be a powerful technique that can be applied effectively in a support kitchen of a casino. Since this paper involved only a single support kitchen in a single casino, further research should be conducted to confirm that ABC can also be applied in support kitchens in other hospitality industry settings.

Practical implications

The use of ABC techniques confirmed that the ABC process is a useful tool in an effort to abolish allocations and can be applied to the remaining support kitchens. Without the benefit of this paper, restaurant management for individual food and beverage outlets received an unfair share of the overhead and did not have appropriate cost information for bread products.

Originality/value

ABC may be a powerful technique when applied effectively to the food and beverage operations in the field of hospitality.

Details

International Journal of Contemporary Hospitality Management, vol. 22 no. 7
Type: Research Article
ISSN: 0959-6119

Keywords

Article
Publication date: 13 February 2007

Carola Raab and Karl Mayer

This research paper aims to examine whether using menu engineering (ME) together with activity‐based costing (ABC) for menu analysis gives new insights about true menu…

6982

Abstract

Purpose

This research paper aims to examine whether using menu engineering (ME) together with activity‐based costing (ABC) for menu analysis gives new insights about true menu profitability. The traditional ME approach only uses food cost to determine the contribution margin of individual menu items. This combined approach uses both food and traceable operating costs to estimate contribution margins more accurately.

Design/methodology/approach

An improved menu engineering model was developed and tested in a buffet restaurant in Hong Kong. Direct observation of restaurant activities allowed most costs to be traced (not simply allocated) to individual menu items.

Findings

The results found that only three of 20 dinner menu entrées were profitable. This unique insight would not have been possible using traditional ME methods alone. The results also showed that ABC methods are applicable to a buffet‐style restaurant.

Research limitations/implications

Only a single restaurant and only the dinner menu were examined in this study. Future research should apply the model used herein to other restaurant types located in different geographical areas in an effort in order to validate the approach.

Practical implications

The paper suggests that ME can be improved upon by first assessing variable costs using ABC methods. Thus, the extra effort required to apply ABC in a restaurant appears to be worthwhile.

Originality/value

The paper combines two disparate analytic techniques (ME and ABC) in a new approach that reveals a menu's true profit and loss picture. The paper also makes several modifications to the traditional ME approach.

Details

International Journal of Contemporary Hospitality Management, vol. 19 no. 1
Type: Research Article
ISSN: 0959-6119

Keywords

Article
Publication date: 1 June 2015

V Moorthy, P Sangameswararaju, S Ganesan and S Subramanian

The purpose of the paper is to solve hydrothermal scheduling (HTS) problem for energy-efficient management by allocating the optimal real power outputs for thermal and…

Abstract

Purpose

The purpose of the paper is to solve hydrothermal scheduling (HTS) problem for energy-efficient management by allocating the optimal real power outputs for thermal and hydroelectric generators.

Design/methodology/approach

HTS can be formulated as a complex and non-linear optimization problem which minimizes the total fuel cost and emissions of thermal generators subject to various physical and operational constraints. As the artificial bee colony algorithm has proven its ability to solve various engineering optimization problems, it has been used as a main optimization tool to solve the fixed-head HTS problem.

Findings

A meta-heuristic search technique-based algorithm has been implemented for hydrothermal energy management, and the simulation results show that this approach can provide trade-off between conflict objectives and keep a rapid convergence speed.

Originality/value

The proposed methodology is implemented on the standard test system, and the numerical results comparison indicates a considerable saving in total fuel cost and reduction in emission.

Details

International Journal of Energy Sector Management, vol. 9 no. 2
Type: Research Article
ISSN: 1750-6220

Keywords

Article
Publication date: 4 September 2020

Benjamin Chukudi Oji and Sunday Ayoola Oke

There is growing evidence of a knowledge gap in the association of maintenance with production activities in bottling plants. Indeed, insights into how to jointly optimise these…

Abstract

Purpose

There is growing evidence of a knowledge gap in the association of maintenance with production activities in bottling plants. Indeed, insights into how to jointly optimise these activities are not clear. In this paper, two optimisation models, Taguchi schemes and response surface methodology are proposed.

Design/methodology/approach

Borrowing from the “hard” total quality management elements in optimisation and prioritisation literature, two new models were developed based on factor, level and orthogonal array selection, signal-to-noise ratio, analysis of variance and optimal parametric settings as Taguchi–ABC and Taguchi–Pareto. An additional model of response surface methodology was created with analysis on regression, main effects, residual plots and surface plots.

Findings

The Taguchi S/N ratio table ranked planned maintenance as the highest. The Taguchi–Pareto shows the optimal parametric setting as A4B4C1 (28 h of production, 30.56 shifts and 37 h of planned maintenance). Taguchi ABC reveals that the planned maintenance and number of shifts will influence the outcome of production greatly. The surface regression table reveals that the production hours worked decrease at a value of planned maintenance with a decrease in the number of shifts.

Originality/value

This is the first time that joint optimisation for bottling plant will be approached using Taguchi–ABC and Taguchi–Pareto. It is also the first time that response surface will be applied to optimise a unique platform of the bottling process plant.

Details

The TQM Journal, vol. 33 no. 2
Type: Research Article
ISSN: 1754-2731

Keywords

Article
Publication date: 2 February 2024

Mojdeh Naderi, Ahad Nazari, Ali Shafaat and Sepehr Abrishami

This study addresses the prevailing complexities and limitations in estimating and managing construction overhead costs (COCs) in the existing literature, with the purpose of…

Abstract

Purpose

This study addresses the prevailing complexities and limitations in estimating and managing construction overhead costs (COCs) in the existing literature, with the purpose of enhancing the accuracy of cost performance indicators in construction project management.

Design/methodology/approach

An innovative approach is proposed, employing the activity-based costing (ABC) accounting method combined with building information modelling (BIM) to assign real overhead costs to project activities. This study, distinguished by its incorporation of a real case study, focuses on an administrative building with a four-story concrete structure. It establishes an automated method for evaluating project cost performance through the detailed analysis of earned value management (EVM) cost indicators derived from ABC results and BIM data.

Findings

The results show that the ABC integration improves the accuracy of cost performance indicators by over 9%, revealing the project's true cost index for the first time and demonstrating the substantial value of the approach in construction engineering and management.

Research limitations/implications

The current study highlights a notable gap in the existing literature, addressing the challenges in onsite overhead cost estimation and offering a solution that incorporates the state-of-the-art techniques.

Practical implications

The proposed method has significant implications for project managers and practitioners, enabling better-informed decisions based on precise cost data, ultimately leading to enhanced project outcomes.

Originality/value

This research uniquely combines ABC and BIM, presenting a pioneering solution for the accurate estimation and management of COCs in construction projects, adding significant value to the current body of knowledge in this field.

Details

Smart and Sustainable Built Environment, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2046-6099

Keywords

Article
Publication date: 25 February 2014

Yen-Ning Su, Chia-Cheng Hsu, Hsin-Chin Chen, Kuo-Kuang Huang and Yueh-Min Huang

This study aims to use sensing technology to observe the learning status of learners in a teaching and learning environment. In a general instruction environment, teachers often…

Abstract

Purpose

This study aims to use sensing technology to observe the learning status of learners in a teaching and learning environment. In a general instruction environment, teachers often encounter some teaching problems. These are frequently related to the fact that the teacher cannot clearly know the learning status of students, such as their degree of learning concentration and capacity to absorb knowledge. In order to deal with this situation, this study uses a learning concentration detection system (LCDS), combining sensor technology and an artificial intelligence method, to better understand the learning concentration of students in a learning environment.

Design/methodology/approach

The proposed system uses sensing technology to collect information about the learning behavior of the students, analyzes their concentration levels, and applies an artificial intelligence method to combine this information for use by the teacher. This system includes a pressure detection sensor and facial detection sensor to detect facial expressions, eye activities and body movements. The system utilizes an artificial bee colony (ABC) algorithm to optimize the system performance to help teachers immediately understand the degree of concentration and learning status of their students. Based on this, instructors can give appropriate guidance to several unfocused students at the same time.

Findings

The fitness value and computation time were used to evaluate the LCDS. Comparing the results of the proposed ABC algorithm with those from the random search method, the algorithm was found to obtain better solutions. The experimental results demonstrate that the ABC algorithm can quickly obtain near optimal solutions within a reasonable time.

Originality/value

A learning concentration detection method of integrating context-aware technologies and an ABC algorithm is presented in this paper. Using this learning concentration detection method, teachers can keep abreast of their students' learning status in a teaching environment and thus provide more appropriate instruction.

Details

Engineering Computations, vol. 31 no. 2
Type: Research Article
ISSN: 0264-4401

Keywords

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