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Servitization Strategy and Managerial Control
Type: Book
ISBN: 978-1-78714-845-1

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Article
Publication date: 1 December 1994

Sofia Börjesson

Activitybased approaches, often referred to as activitybased costingor activitybased management, have recently gained attention as beinguseful tools for a better…

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2323

Abstract

Activitybased approaches, often referred to as activitybased costing or activitybased management, have recently gained attention as being useful tools for a better understanding of cost behaviour and cost control. Such approaches aim at providing accurate cost information in order to keep track of costs and to yield continuous improvement. Presents two case studies where activitybased projects were run. The two firms studied represent two different objectives with the activity analysis, namely product costing and activity control. The characteristics of the activity information affect its usefulness, and in this article, activity information is subdivided into quantitative and qualitative information. Argues that it is important to have a clear objective with an activitybased approach in order to gather the appropriate type of activity information and thereby exploit the potential improvement opportunities. Only quantitative activity information suffices for approaches aiming at costing, whereas approaches aiming at activity control require also qualitative activity information. The two case studies illustrate the significance of using the type of activity information that fits the purpose.

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International Journal of Operations & Production Management, vol. 14 no. 12
Type: Research Article
ISSN: 0144-3577

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Article
Publication date: 29 May 2009

Carola Raab, Karl Mayer, Stowe Shoemaker and Steve Ng

This paper aims to demonstrate how activitybased pricing can be applied in a restaurant setting by combining the use of price sensitivity measurement with activitybased costing.

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5266

Abstract

Purpose

This paper aims to demonstrate how activitybased pricing can be applied in a restaurant setting by combining the use of price sensitivity measurement with activitybased costing.

Design/methodology/approach

Data are collected at a Hong Kong buffet restaurant, based on guests' price perceptions and the establishment's detailed cost structure. These data are analyzed by using price sensitivity measurement techniques and activitybased costing methods, separately, and then combined to create an activitybased pricing analysis of the restaurant's menu.

Findings

The use of activitybased pricing techniques reveals that, although the guests are relatively price‐insensitive, drastic measures were needed to reduce costs for the restaurant to become profitable. Without the benefit of this study, the restaurant's management would not have been able to see clearly the nature of the challenges that they faced, since a single pricing study, or cost study, would have missed the combined cost and pricing effects that were captured by activitybased pricing.

Research limitations/implications

Activitybased pricing is shown to be a powerful technique that can be applied effectively in a restaurant. Utilizing this method allows a restaurant truly to understand both its operating cost structure and the price perceptions of it guests. Since this study involved only a single buffet restaurant, further research should be conducted to confirm that activitybased pricing can also be applied in other restaurant and hospitality industry settings.

Practical implications

The findings from this study suggest that activitybased pricing may be a viable way for restaurant managers to gain a better understanding of both their guests' price perceptions and the true cost structure of their restaurants. Use of activitybased pricing allows restaurant managers to set price levels that cover all operating costs and profits, while still meeting guests' expectations of value.

Originality/value

This study is the first of its kind in the hospitality literature, since no prior research has applied activitybased pricing in a hospitality research setting. This study represents an important new addition to the existing body of hospitality cost and pricing literature.

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International Journal of Contemporary Hospitality Management, vol. 21 no. 4
Type: Research Article
ISSN: 0959-6119

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Article
Publication date: 1 November 2001

Martin Broad and David Crowther

The technique of ABC has been widely adopted by universities in the UK, with the assumption that the more accurate identification of costs makes them more manageable. It…

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1759

Abstract

The technique of ABC has been widely adopted by universities in the UK, with the assumption that the more accurate identification of costs makes them more manageable. It is the purpose of this paper to consider this question of manageability through identification and allocation in the university sector and to question this as a basis for decision making and resource allocation. The type of costing systems in place in an organisation must meet the needs of the organisation as a whole and there are a number of factors that will affect the type of costing system that is required and there are a number of costing systems that can be used. This paper considers the use of ABC within a university and whether school costing and course costing can meet the requirements of a university facing a challenging business environment where a significant amount of pressure is being exerted on the financial stability of some universities. In doing so the ability of ABC to satisfy the informational requirements of a university is called into question.

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Journal of Applied Accounting Research, vol. 6 no. 2
Type: Research Article
ISSN: 0967-5426

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Article
Publication date: 1 April 1993

B.M. Amsler, J.S. Busby and G.M. Williams

Traditional costing systems suffer from a number of problemsbecause of the way in which they allocate overheads: product costs havearbitrary components; managers lack…

Abstract

Traditional costing systems suffer from a number of problems because of the way in which they allocate overheads: product costs have arbitrary components; managers lack information about what causes costs to be incurred; and it becomes impossible to know which of several product lines is the most profitable. Describes a case study in which activitybased costing and process mapping were applied in combination in an engineering firm, where it was found that it was necessary to specify a method of process‐based costing.

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Integrated Manufacturing Systems, vol. 4 no. 4
Type: Research Article
ISSN: 0957-6061

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Book part
Publication date: 8 April 2005

Petri Suomala

The essential investments in new product development (NPD) made by industrial companies entail effective management of NPD activities. In this context, performance…

Abstract

The essential investments in new product development (NPD) made by industrial companies entail effective management of NPD activities. In this context, performance measurement is one of the means that can be employed in the pursuit of effectiveness.

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Managing Product Innovation
Type: Book
ISBN: 978-1-84950-311-2

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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…

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9058

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.

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

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Article
Publication date: 1 August 2000

Klaus Ceynowa

In the context of the introduction of global budgeting, business management methods of control are gaining increasing importance in the academic sphere. Cost bearers are…

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1500

Abstract

In the context of the introduction of global budgeting, business management methods of control are gaining increasing importance in the academic sphere. Cost bearers are expecting from the universities a significant increase in the cost transparency of ser‐vice provision particularly in the structuring of a university cost accounting system. For the field of academic libraries the German Research Association has initiated the project ‘Cost Management for Academic Libraries’. The aim of the project is to develop a method of cost management appropriate to the financial management frame‐work of public sector provision for academic libraries. This contribution outlines the steps in the structuring of a method of cost controlling in the provision of academic literature and information worked out in the project. Because of the particular nature of the service and product provided by the library services, activitybased cost man‐agement represents the most suitable method of control for libraries and other central facilities and can be used in particular to identify possibilities of cost reduction and to achieve optimum efficiency.

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Performance Measurement and Metrics, vol. 1 no. 2
Type: Research Article
ISSN: 1467-8047

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Article
Publication date: 13 July 2010

Ilhan Dalci, Veyis Tanis and Levent Kosan

The purpose of this paper is to show the implementation of customer profitability analysis (CPA) using time‐driven activitybased costing (TDABC), in a Turkish hotel.

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10614

Abstract

Purpose

The purpose of this paper is to show the implementation of customer profitability analysis (CPA) using time‐driven activitybased costing (TDABC), in a Turkish hotel.

Design/methodology/approach

A case study was conducted in a four‐star hotel with 100‐room capacity in the Çukurova region of Turkey. Interviews, direct observations, and documentation collection were used to collect the data.

Findings

The results showed that some of the customer segments which were found unprofitable under the conventional ABC method were determined profitable using TDABC. The case study also revealed the cost of idle resources devoted for front office, housekeeping, food preparation, and marketing activities.

Research limitations/implications

Only a single hotel operating in Turkey is examined in this paper. Further research should focus on implementing CPA using TDABC in other hotels in Turkey and abroad.

Practical implications

Based on the results of the study, the hotel management is better able to understand profitability of different customer segments and implement appropriate strategies. Moreover, the time equations of TDABC are considered to provide hotel management with an opportunity to better balance the capacities supplied in departments.

Originality/value

There is limited research relating to profitability analysis in service companies in general and in the hotel industry in particular. Therefore, this paper is unique in the sense that it analyzes the use of TDABC systems for CPA within a real case hotel.

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International Journal of Contemporary Hospitality Management, vol. 22 no. 5
Type: Research Article
ISSN: 0959-6119

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Article
Publication date: 26 June 2009

Rong‐Ruey Duh, Thomas W. Lin, Wen‐Ying Wang and Chao‐Hsin Huang

This paper describes the design and implementation of an activitybased costing (ABC) system for a textile company in Taiwan.

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7078

Abstract

Purpose

This paper describes the design and implementation of an activitybased costing (ABC) system for a textile company in Taiwan.

Design/methodology/approach

An in‐depth field investigation by collecting and analyzing 39 months of field data, gathering information from files and archives, direct observation, interviews, and statistical analyses was conducted.

Findings

First, the company's existing cost system adopted a volume‐based cost driver to allocate overhead costs to products. While the company devised an “equivalent factor” to take production‐complexity into account, the weakness of the metric led to product cost distortions. Second, the existing volume‐based cost system ignores the impact of rework processes on product costs. Third, adding complexity‐related cost drivers to the volume‐based cost driver increases the ability to explain variations in overhead costs. Fourth, the newly designed ABC system incorporates both volume‐based and non‐volume based drivers, which considers the effect of rework on product costs. Fifth, the existing volume‐based cost system overestimates the costs of high‐volume products and underestimates the costs of products with high production‐complexity. Finally, the company still stays at the analysis phase of the ABC system implementation, possibly due to revision of strategy, no linkage to incentives, lack of MIS support, and inadequate inventory control.

Practical implications

The above findings have implications for companies attempting to implement ABC.

Originality/value

This paper extends prior research in the following. First, it reports on the entire process of ABC implementation for a given company, as well as facilitators/impediments in the process. Second, while most prior research tends to focus on success cases, our study presents a failure case, which has implications for practitioners trying to avoid the same mistakes.

Details

International Journal of Accounting & Information Management, vol. 17 no. 1
Type: Research Article
ISSN: 1834-7649

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