Academic journal article Academy of Accounting and Financial Studies Journal

Influences on Administrative Costs in Convenience Store Chains: A Cross-Sectional Activity-Based Study

Academic journal article Academy of Accounting and Financial Studies Journal

Influences on Administrative Costs in Convenience Store Chains: A Cross-Sectional Activity-Based Study

Article excerpt


Convenience store chains engage in many activities from selling lottery tickets to fresh food to gasoline. Which of these activities is likely to most increase, or decrease, administrative costs?

The practical research goal is to establish a statistically sound links between chain activities and administrative costs. Academically, this comprises the first industry-specific cross-sectional activity based-budgeting study.

The theoretical model for this research is activity-based budgeting (ABB), a budgeting methodology derived from activity-based costing (ABC). Unlike traditional budgeting methods, ABB focuses not on spending, but on activity; what the firm does as opposed to what it spends (McClenahen, 1995). With ABB the firm's activities form cost pools associated with cost drivers to estimate future costs. ABB's historical roots can be traced to ABC and budgeting (Abernethy & Vagnoni, 2004; Beatty, 2007; Hopwood, 1974).

To accomplish its objectives this research pursues four specific outcomes: (a) A clear repeatable measurement of administrative costs; (b) the establishment of a data model materially free of intervening variables to establish valid correlations between activities and administrative costs; (c) a cross-sectional survey to collect industry data to establish an initial set of norms for subsequent comparison; and (d) results providing traceability between activities and administrative costs.


Which activity measures of a convenience store chain drive administrative costs?


The central cost number of interest, and dependent variable for this analysis, is per-store administrative cost. Practical experience and anecdotal observation indicates that per-store administrative cost is measurably influenced by four attributes of a convenience store chain--chain size, business complexity, organizational capabilities, and organization characteristics.

The specific definition of administrative costs is detailed in the methodology section, but generally it could be described as "headquarters cost" as opposed to "store cost." Per-store administrative cost is defined as total administrative costs divided by total company-owned, company-operated stores.

Specific Hypotheses

For each of the four major areas--chain size, business complexity, organizational capability, and organizational characteristics--proxies have been identified, beginning with chain size proxies.

Chain Size

There are three measures of chain size expected to influence per-store administrative costs:

Smaller companies, on the whole, have been shown to bear a proportionally larger burden for administrative costs than larger companies (Nair & Rittenberg, 1983); therefore, economies of scale should emerge as the quantity of COCO stores increases.

Dealer locations are those operated by independent businesses under a licensing agreement containing image restrictions and requirements to purchase fuel from the convenience store chain.

Business Complexity

Business complexity is a measure of how much administrative burden is encountered based on the varied activities of the business.

A major-oil agreement is defined as an agreement to purchase predefined quantities of product and process retail credit cards.

The quantity of motor fuel tax schedules provides a proxy for fuel sales complexity which encompasses chain geographic reach, presence in taxing authorities with high reporting requirements (such as Chicago), and variance in the number of fuel grades sold.

Organizational Capability

Organizations often combat possible cost increases with automation. In order to disambiguate the term "electronic data" or confuse it with commonly misused terms such as electronic data interchange, this research settles on the terminology "processed Without Muman Intervention" or WHI. …

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