Academic journal article International Journal of Business and Society

Activity Based Costing (ABC) Adoption among Manufacturing Organizations - the Case of Malaysia

Academic journal article International Journal of Business and Society

Activity Based Costing (ABC) Adoption among Manufacturing Organizations - the Case of Malaysia

Article excerpt

ABSTRACT

The main purpose of this research is to study the adoption of ABC as an overhead costing system among manufacturing organizations in Malaysia. The stages of adoption and seven factors expected3 to influence ABC adoption are derived from previous studies in similar research area. This study uses two methods of data collection, a survey and a case study. The study shows that 36 percent of the organizations are ABC adopters while the remaining 64 percent are non-adopters. The regression analysis performed on the data showed that three factors which are decision usefulness, organization support, and internal measures had significant influence on ABC while the other four factors namely cost, IT, training, and learning and growth were not found to be of any significant influence. A case study was performed on three selected organizations that adopt ABC. Through the case study, a more detail information on organizations' overhead costing technique can be gathered. Apart from the seven factors investigated through the survey method, the case study includes aspects such as the background of change from traditional overhead costing system to ABC, barriers to change and the approaches used to handle them. The findings from the case study complement the findings from the survey by providing explanations to the information gathered through the survey method.

Keywords: Overhead costing; Manufacturing; Costing techniques.

I. INTRODUCTION

In the traditional accounting system, treatment of overhead fails to adequately capture causal relationship between product and cost incurrence. Under the system, costs are best seen as controlled by the departments. The traditional overhead costing system emphasizes on the efficient use of resources, and focuses on product. Furthermore, traditional cost accounting reports financial information such as ROI, profit and market share. In the 1980's much criticisms were raised regarding the ability of traditional cost accounting to provide relevant, timely, and accurate information to the management. ABC emerges in recognition that traditional costing system produced inaccurate information. In ABC, costs are seen as best controlled by managing activities. Emphasis is shifted to the effective use of resources. ABC improves accuracy over traditional system by using multiple cost drivers including set-up hours, number of orders, and number of shipping. In addition, it also integrates financial and non-financial information in the reports.

ABC has been studied from various perspectives for quite some time in many countries. Even though studies have shown that the adoption of ABC benefits the organizations, its level of adoption is still considered low. Many organizations hang on to the traditional cost accounting methods in dealing with overhead costs. This study attempts to investigate the status of ABC adoption among manufacturing organizations in Malaysia, and the factors influencing its adoption. It is also interesting to learn from the experience of two firms already adopted ABC yet still at the initial stage, and another firm which has reached a mature stage of ABC adoption.

II. RESEARCH OBJECTIVES

The general objective of this study is to increase the understanding of ABC adoption in manufacturing organizations in Malaysia. Specifically, the objectives are as follows:

1. To determine the adoption status of ABC system among manufacturing organizations in Malaysia, thus establishing a foundation for future research on ABC adoption and implementation in this region.

2. To investigate whether certain factors (Cost, Decision, IT, Top Management, NonAccounting, Training, and Performance Measurement) have any influence on the adoption of ABC in manufacturing organizations in Malaysia, thus adding to the existing pool of research in this field from the perspective of a developing country.

3. To understand and explore further ABC adoption in specific manufacturing organizations

III. …

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