Activity-Based Costing Management: A Growing Practice

By Sharman, Paul A.; Armitage, Howard et al. | CMA - the Management Accounting Magazine, March 1993 | Go to article overview

Activity-Based Costing Management: A Growing Practice

Sharman, Paul A., Armitage, Howard, Nicholson, Ron, CMA - the Management Accounting Magazine

More than just a way for management accountants to derive cost information, activity-based management allows managers to change activities and processes to make their organizations more competitive.

When this magazine published its first article on activity-based costing (ABC) three years ago, the subject was brand new. Practical examples were limited to a handful of experimental projects, conducted by a few hardy management accountants. Time after time in these cases, ABC produced very different results from costing systems based on generally accepted accounting principles. High-volume products and customers proved more profitable than previously believed, for example, while low-volume, specialty products were often unprofitable. Accountants obtained new insights into the costs of activities, processes and drivers. Not only did ABC produce new cost information, but the information itself caused managers to change their activities and processes.

According to a recent survey, use of ABC by Canadian companies is growing. Many organizations beleaguered by the current recession have turned to the practice in order to gain more financial, strategic and operational information -- information that will be central to their competitiveness in the '90s and beyond. No longer is ABC considered a consulting gimmick. Rather, it has become a tool for management accountants to help their organizations become more profitable and more effective.

With each application of ABC, accountants' understanding of the tool has increased, and the method of implementation has been refined. In fact, many American corporations, including IBM and AT&T, refer to the concept not just as activity-based costing but "activity-based cost management," (ABCM) or simply, "activity-based management." Smaller companies, such as specialty sock producer ThorLo(1) based in North Carolina, are integrating ABC systems into routine management reporting, and evaluating their processes in order to eliminate non-value-added activities, reduce cycle time and increase profits. By simulating operational changes, sales mix and cost changes, ABC helps managers identify the costs of possible alternatives before making decisions. On its own, ABC provides better cost information. But its most effective use is in a framework of change and continuous improvement, usually involving process re-engineering and performance measurement. Activity-based management means integrating activity-based costing information into an overall management process.

Following are findings from ABCM case studies of eight organizations -- including five manufacturers, and one company each from financial services, energy and distribution -- published by the Institute of Management Accountants(2):

* More than a cost system, activity-based cost management is a management process. ABC information enabled managers to oversee activities and business processes by giving them a cross- functional, integrated view of the firm.

* ABC information supported both strategic and operational decisions in such diverse functions as product lines, market segments, customer relationships and process improvements.

* ABC models can supplement traditional costing systems.

* ABC did not translate directly into improved profits and operating performance. In order to capitalize on the insights provided by ABC analysis, management must institute a conscious process of organizational change.

How to get started

For many Canadian organizations, implementing ABCM is now the biggest hurdle. It generally falls to senior financial managers to champion the process within the organization. But senior operating personnel must act as sponsors. As most of the information used in ABCM is non-financial, the entire organization must be involved in collecting it. For its results and information to be accepted by the organization, operations and marketing people must completely understand and embrace the process from the beginning. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)


1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25,

Cited article

Activity-Based Costing Management: A Growing Practice


Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25,

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.