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A comparison of product costing practices in discrete-part and assembly manufacturing and continuous production process manufacturing
Abstract
Research into product costing practice has not studied whether there are differences in product costing practice between different types of manufacturing. This paper compares the product costing practices of operating units in discrete-part and assembly manufacturing, and continuous production process manufacturing. The results show that there are few differences in product costing practices between these two manufacturing methods. Similar proportions of operating units in these two manufacturing environments use similar methods to treat overheads and have similar experiences of activity-based costing. The only area of difference is in the use of overhead rates where significantly more units in discrete-part and assembly manufacturing use a direct labour hour rate and significantly more units in continuous production process manufacturing use units produced and production time-based rates.
... A questionnaire-based survey carried out by Brierley et al., (2006), revealed that product cost information was the least important element in making decisions on selling prices, make-or-buy, cost reduction, product design, evaluating new production processes and product discontinuation. Brierley et al., (2006) finding contrasts with some earlier results (Govindarajan and Anthony, 1983;Kaplan & Atkinson, 1989;Mills, 1988). ...
... A questionnaire-based survey carried out by Brierley et al., (2006), revealed that product cost information was the least important element in making decisions on selling prices, make-or-buy, cost reduction, product design, evaluating new production processes and product discontinuation. Brierley et al., (2006) finding contrasts with some earlier results (Govindarajan and Anthony, 1983;Kaplan & Atkinson, 1989;Mills, 1988). In general, cost managers rate 'actionable cost information' as their top priority (Ernst and Young, 2003). ...
... In India, research conducted by Anand et al., (2004) found that in the first stage of cost allocation, 62% of companies used the direct method to allocate support department overhead costs amongst their production departments; the reciprocal method, which is considered more theoretically sound, was not popular within corporate India. Brierley et al., (2006) argued that the importance product cost information in determining selling price was minimal, and the importance of product costs in decision making was not influenced by the method of overhead cost allocation. As shown in Table 1, direct labour-based (hours and cost) overhead allocation methods are the most common overhead allocation bases worldwide. ...
The paper integrates the extant accounting literature on overhead cost allocation and highlights areas for further research. The findings show the primacy of arbitrary cost allocations is maintained and that managers are often unsure of their costs and apprehensive about the problems emanating from inaccurate cost allocations.
... A questionnaire-based survey carried out by Brierley et al., (2006), revealed that product cost information was the least important element in making decisions on selling prices, make-or-buy, cost reduction, product design, evaluating new production processes and product discontinuation. Brierley et al., (2006) finding contrasts with some earlier results (Govindarajan and Anthony, 1983;Kaplan & Atkinson, 1989;Mills, 1988). ...
... A questionnaire-based survey carried out by Brierley et al., (2006), revealed that product cost information was the least important element in making decisions on selling prices, make-or-buy, cost reduction, product design, evaluating new production processes and product discontinuation. Brierley et al., (2006) finding contrasts with some earlier results (Govindarajan and Anthony, 1983;Kaplan & Atkinson, 1989;Mills, 1988). In general, cost managers rate 'actionable cost information' as their top priority (Ernst and Young, 2003). ...
... In India, research conducted by Anand et al., (2004) found that in the first stage of cost allocation, 62% of companies used the direct method to allocate support department overhead costs amongst their production departments; the reciprocal method, which is considered more theoretically sound, was not popular within corporate India. Brierley et al., (2006) argued that the importance product cost information in determining selling price was minimal, and the importance of product costs in decision making was not influenced by the method of overhead cost allocation. As shown in Table 1, direct labour-based (hours and cost) overhead allocation methods are the most common overhead allocation bases worldwide. ...
... La globalización e internacionalización de los mercados, la creciente incertidumbre del entorno, el aumento de la competencia y los cambios en la demanda arrastran a las organizaciones a plantearse cambiar sus estrategias de negocios [Abernethy et al., 2001;Brierley, 2001;Drury y Tayles, 2005;Brierley et al., 2006;Sartorius et al., 2007]. ...
... Las bases de reparto utilizadas son, por lo general, horashombre, horas-máquina y unidades de producto fabricado. La diferencia entre un sistema tradicional y un ABC radica, principalmente, en el tratamiento de los costes indirectos, ya que no todos ellos, necesariamente, están vinculados al volumen de producción [Brierley, 2001;Lin et al., 2001;Ben-Arieh y Qian, 2003;Drury y Tayles, 2005;Brierley et al., 2006;Qian y Ben-Arieh, 2008;Baykasoglu y Kaplanoglu, 2008;Knezevick y Mizdrakovic, 2010]. ...
La globalización e internacionalización de los mercados, así como el aumento de la competencia arrastran a las organizaciones a plantearse cambiar sus estrategias de negocios. En este sentido, el presente estudio tiene por objeto mejorar el sistema de costes y gestión en una Autoridad Portuaria, mediante la implantación de un sistema de costes y gestión basado en las actividades (ABC/ABM). Con ello, se pretende dar respuesta a la necesidad que tenía esta entidad de adaptar su sistema de información interna a estas nuevas exigencias del mercado obteniendo, por consiguiente, una información de mayor calidad para lograr una gestión estratégica de sus costes.
... Adopting the diffusion of innovation theory, a number of studies have investigated the relationships between the adoption of ABC and a variety of contextual factors. However, very few studies examined the adoption of ABC as a process (e.g. a set of different adoption levels) and paid adequate attention into the detailed adoption steps of ABC (Brierley et al., 2006). Indeed, the adoption of ABC include performing a number of different activities (such as activity analysis, allocation of costs to cost pools, and allocation of cost pools to products/services), while most of the literature on SCM and ABC have looked at the ABC adoption as one stage process (e.g. ...
... That is why many studies have investigated the extent of the relationships between the adoption of ABC and a variety of contextual factors. However, very few studies examined the adoption of ABC as a continuing process (e.g. a set of different stages) and paid adequate attention into the adoption stages of ABC (Al-Omiri and Drury, 2007a;Askarany, 2006;Askarany et al., 2007b;Brierley et al., 2006). Indeed, the adoption of ABC includes performing a number of different activities (such as activity analysis, allocation of costs to cost pools, and allocation of cost pools to products/services), while most of the literature on SCM and ABC have looked at the ABC adoption as one stage process (e.g. ...
... Finally, the variable decision equals one, in a similar way to the former variable. A value of zero is associated either with firms that decided against an adoption or those which had never thought about it (Bjørnenak 1997;Brierley et al. 2006). ...
... With regard to missing raw data, a different measurement in primary studies and a recoding and recalculation of correlations is not feasible, so we are obliged to choose a classification of primary studies as described in Fig. 2. A differentiated classification in these three groups (consideration, decision after consideration and decision) has to be preferred, despite of the similarities of the both items 'decision after consideration' and 'decision', to a combination of both items as this better reflects the procedure in primary studies. Indeed, in some primary studies (e.g., Brierley et al. 2006;Brown et al. 2004) respondents are differentiated between those who had never considered an adoption of CM methods and in those who decided against it. ...
In the course of this study, a quantitative meta-analysis of the antecedents of the adoption and success of strategic cost management methods was conducted, based on 50 primary studies. Primarily qualitative reviews of previous literature in this field were expanded by examining and comparing the effect sizes of and between antecedents of primary studies and by integrating their diverse measurements of effects. The mediation of relationships between antecedents was quantitatively explored and integrated using a comprehensive structural model which is unaccounted for in current literature reviews. Quantitative moderator analyses demonstrated that conflicting effects could be explained by referring to country of origin, firm size, objects of analysis, and the position of respondents. The majority of these relationships could be seen to be valid across countries and industries. Surprisingly, however, most of the external, technological, and organisational context variables had no significance or only a weak impact, whereas a network of internal individual characteristics of responsible managers (such as the identification with cost management or the methodological knowledge of managers) had a strong correlation with the adoption and success of cost management methods.
... According to Sipper and Bulfin (1998), continuous line production is a radical extension of flow line production. The process works by passing basic materials through different stages during which they are refined or processed into one or more products, such as chemicals (Tousain and Bosgra, 2006), food (Brierley et al., 2006) and steel mills (Tang and Wang, 2008). According to Weinekötter (2009), the continuous line process is based on high volume demand and the materials involved move easily and constantly from one stage of the process to another. ...
... Production of this type involves very high investment costs, which must be justified by high volume demand. According to Brierley et al. (2006), capital investment and automation for this type of production are often the most expensive compared with other processes. This is because the processes are designed to run daily and continuously because of the high costs incurred in starting up and closing down (Hill, 1993). ...
... According to Sipper and Bulfin (1998), continuous line production is a radical extension of flow line production. The process works by passing basic materials through different stages during which they are refined or processed into one or more products, such as chemicals (Tousain and Bosgra, 2006), food (Brierley et al., 2006) and steel mills (Tang and Wang, 2008). According to Weinekötter (2009), the continuous line process is based on high volume demand and the materials involved move easily and constantly from one stage of the process to another. ...
... Production of this type involves very high investment costs, which must be justified by high volume demand. According to Brierley et al. (2006), capital investment and automation for this type of production are often the most expensive compared with other processes. This is because the processes are designed to run daily and continuously because of the high costs incurred in starting up and closing down (Hill, 1993). ...
Manufacturing is a global activity that started during the industrial revolution in the late 1 9 t h c e n t u r y t o c a t e r f o r t h e l a r g e -s c a l e p r o d u c t i o n o f p r o d u c t s . S i n c e t h e n , manufacturing has changed tremendously through the innovations of technology, processes, materials, communication and transportation. The major challenge facing manufacturing is to produce more products using less material, less energy and less involvement of labour. To face these challenges, manufacturing companies must have a strategy and competitive priority in order for them to compete in a dynamic market. A review of the literature on the decomposition of manufacturing processes outlines three main processes, namely: high volume, medium volume and low volume. The decomposition shows that each sub process has its own characteristics and depends on the nature of the firm's business. Two extreme processes are continuous line production (fast extreme) and project shop (slow extreme). Other processes are in between these two extremes of the manufacturing spectrum. Process flow patterns become less complex with cellular, line and continuous flow compared with jobbing and project. The review also indicates that when the product is high variety and low volume, project or functional production is applied.
... Adopting the diffusion of innovation theory, a number of studies have investigated the relationships between the adoption of ABC and a variety of contextual factors. However, very few studies examined the adoption of ABC as a process (e.g. a set of different adoption levels) and paid adequate attention into the detailed adoption steps of ABC (Brierley et al., 2006). Indeed, the adoption of ABC include performing a number of different activities (such as activity analysis, allocation of costs to cost pools, and allocation of cost pools to products/services), while most of the literature on SCM and ABC have looked at the ABC adoption as one stage process (e.g. ...
... That is why many studies have investigated the extent of the relationships between the adoption of ABC and a variety of contextual factors. However, very few studies examined the adoption of ABC as a continuing process (e.g. a set of different stages) and paid adequate attention into the adoption stages of ABC (Al-Omiri and Drury, 2007a;Askarany, 2006;Askarany et al., 2007b;Brierley et al., 2006). Indeed, the adoption of ABC includes performing a number of different activities (such as activity analysis, allocation of costs to cost pools, and allocation of cost pools to products/services), while most of the literature on SCM and ABC have looked at the ABC adoption as one stage process (e.g. ...
In today's intense global competition, supply chain management (SCM) is as a vital tool for helping managers to improve productivity, profitability and the performance of their organisations. In doing so, SCM requires more accurate cost data regarding all activities and processes within the organisations. Given the above, activity-based costing (ABC) can significantly contribute to global supply chain management as it is suggested to fulfil the above requirements by providing more accurate, detailed and up-to-date information on all activities and processes in organisations.Contributing to the SCM and ABC literature, current study first identifies different types of improvements which ABC can offer to SCM and the performance of the organisations, then it examines the extent of association between business size as well as business industry (as organisational factors) affecting the adoption of ABC in New Zealand (NZ) through using a survey questionnaire and targeting NZ qualified CIMA members. To improve SCM and organisations’ performance by increasing the adoption of ABC in organisations, one of the main implications of the findings is that the adoption of ABC in smaller firms needs more attention compared with the larger firms regardless of their industries (manufacturing versus non-manufacturing firms). However, when the decision is made to implement ABC, non-manufacturing firms (rather than manufacturing firms) need more attention to proceed with a higher level of adoption of ABC.
... In discrete manufacturing, distinct and identifiable items are produced by joining parts and components into assemblies of higher hierarchy levels [1]. With the rise of mass-customization and production decentralization, discrete assembly processes are becoming increasingly complex, which manifests itself in growing structural part complexities paired with dynamically changing product configurations [2,3]. ...
Production processes are becoming increasingly complex and decentralized, spanning across multiple manufacturing areas, factories, and even countries. Thereby is the development of a holistic and data-continuous traceability system, which provides transparency of records for the entire manufacturing flow from raw materials
to the final product, one of the main challenges. While some solutions already address traceability issues in supply chain management and manufacturing, customized and volatile industries, in which each product features
a unique configuration, are still lacking appropriate models and proofs of concept. In this research, we develop a
decentralized blockchain application called TokenTrail, which focuses on the specific traceability requirements
of multi-hierarchical assembly structures. The proposed blockchain architecture is based on a consortium Ethereum network and a Proof of Authority consensus, which delivers a trusted and shared database within an economic processing framework. To overcome the challenges of managing liaison transformations, we develop an assembly token manager based on the semi-fungible ERC 1155 token, which enables a direct representation of complex assembly processes and structures containing unique parts and batches within one smart contract. A user-friendly front-end application simplifies the querying of the recorded traceability data and visualizes existing dependencies.
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... The difference is that discrete manufacturing is the cutting and assembly of a bill of materials into a final distinct product (2), whereas process manufacturing is the thermal, chemical or biochemical conversion of resources into products, byproducts and waste streams (3). Both share the core value that their products and processes must be profitable to remain in business (4). However, there is mounting pressure for businesses to become not just economically sustainable but also environmentally sustainable. ...
Circular economy (CE) thinking has emerged as a route to sustainable manufacture, with related cradle-to-cradle implications requiring implementation from the design stage. The challenge lies in moving manufacturing environments away from the traditional linear economy paradigm, where materials, energy and water have often been designed to move out of the system and into receivership of waste management bodies after use. Recent applications of industrial digital technologies (IDTs: for example internet of things, data-driven modelling, cyber-physical systems, cloud manufacturing, cognitive computing) to manufacturing may be instrumental in transforming manufacturing from linear to circular. However, although IDTs and CE have been the focus of intensive research, there is currently limited research exploring the relationship between IDTs and the CE and how the former may drive the implementation of CE. This article aims to close the knowledge gap by exploring how an IDT (data-driven modelling) may facilitate and advance CE principles within process manufacturing systems, specifically waste valorisation and process resilience. These applications are then demonstrated through two real-world manufacturing case studies: (a) minimising resource consumption of industrial cleaning processes and (b) transforming wastewater treatment plants (WWTPs) into manufacturing centres.
... There are a significant number of studies in the literature that integrates the ABC method with logistics management and highlights the benefits of using ABC such as improved performance, processes, productivity, profitability, and visibility of costs. However, the survey of the literature dealing with ABC along with logistics management leads to the conclusion that the lack of studies that examining the detailed adoption of ABC on logistics costs of a firm in a supply chain or whole supply chain as mentioned in (Brierley et al. 2006;Al-Omiri and Drury 2007;Askarany et al. 2010). Some studies in the literature have addressed ABC and logistics together in terms of a member of the supply chain, a decision or part of it while others perform ABC for managing the overall supply chain costs. ...
Nowadays, there has been a growing interest in reverse logistics in both theory and practice due to legislations, economic and ecological benefits, and social responsibilities. If enterprises incorporating reverse logistics activities to its structure want to realize the required level of customer service and comply with related obligations at the lowest total cost, analyzing the actualized reverse logistics activities and correct determination and reduction of costs of these activities are essential for them. Traditional accounting methods are inadequate for accurate assignment of overhead costs. In this paper, an actual application of Activity Based Costing (ABC) to reverse logistics activities is presented in order to help managers to improve their understanding of costs that arises from reverse logistics activities. An illustrative case study in the end-of-life vehicle (ELV) recovery industry in Turkey is presented to demonstrate the steps of how ABC is applied to reverse logistics systems. The results enable to efficient management of reverse logistics activities and their costs in an ELV recovery chain and exhibit which reverse logistics activities performed by a dismantler cause the highest cost and can be improved. In the case study, products (ELVs) are evaluated as inputs and the obtained materials from reverse logistics activities are evaluated as outputs of the system by force of the nature of reverse logistics. Results show that while most cost of the company (52.7%) was related with the output of B Group of components/parts (sent to shredders); the minimum cost (12.3%) was realized for the output of A Group components/parts (sent to recyclers). The remaining 35% of the costs belong to the C Group of outputs (sent to secondary markets).
... For the flow production, it has two subsections. One is flow process that is designed for the manufacture of some products such as food [6], chemicals [7], and steel [8] that are fluid or semifluid. If the items are discrete, it is a discreteitem flow line which can be further divided into transfer line (sometimes known as transfer machines) and assembly line (or manual flow line). ...
Manufacturing is the application of labor, tools, machines, chemical and biological processing, to an original raw material by changing its physical and geometrical characteristics, in order to make finished products. Since the first industrial revolution, to accommodate the large-scale production, tremendous changes have happened to manufacturing through the innovations of technology, organization, management, transportation and communication. This work first reviews the highvolume low-mix process by focusing on the quantity production, transfer line and single model assembly line. Then, it reviews the high-volume high-mix process. For such a process type, mixed U+002F multi model assembly line is usually adopted. Hence, two main decisions on them, i.e., balancing and, sequencing are reviewed. Thereafter, it discusses the low-volume high-mix process in detail. Then, technology gap and future work is discussed, and at last, conclusions are given.
... In this context, the product costs become the sum of the costs of activities that occur for product manufacturing (Özbayrak et al., 2004). The presentation of the ABC porBrierley et al. (2006), BenArieh & Qian (2003),Gunasekaran & Sarhadi (1998)complement the concept presented by Özbayrak, proposing the analysis of product cost, driving the cost of activities to product costing, leaving aside the analysis of the operational part with the method. Hoque (2000) andÖzbayrak et al. (2004)present the implementation of the ABC model in the industry as a model to estimate manufacturing costs using the cost information for making management decisions. ...
The adoption of Lean philosophy by companies has motivated the need for improvements in the traditional accounting system. Such a system has not been seen with favor by Lean organizations under the accounting focus when it comes to waste elimination. After all, the traditional costing system is not conceptually prepared to operate efficiently under the Lean production model. Therefore, the aim of this research was to evaluate the degree of integration of costing methods (ABC, TDABC and VSC) in Lean enterprises observing how these methods integrate to the reality of the Lean Manufacturing model. A literature review encompassing the period 1994-2014 was carried out. Studies were critically analyzed to develop a method of classification in order to obtain data and produce results and conclusions under a qualitative and quantitative approach. The results showed that, although costing methods are applied, these mostly serve only as a reference for the process of formal identification of costs, theory or comparative analysis to the traditional cost system, but are not actually integrated to the production analysis process.
... (2002), todas as informações de custos e mix de produção consistem nos principais fomentos para as decisões de gerenciamento contábil Drury e Tayles (2006), em recente survey realizado com 184 organizações do Reino Unido, constataram que apenas 35% das empresas consultadas consideram outros custos além dos variáveis. Ainda, nesse enfoque, outro ponto importante consiste na comparação das práticas de custeios dos produtos em diferentes processos de fabricação, pois, conforme constatado por Brierley et al. (2006), em survey realizada com 280 membros da Chartered Institute of Management Accountais (CIMA), não existem diferenças consideráveis entre as práticas de fabricação vigentes nas indústrias manufatureiras. ...
O objetivo deste artigo foi aplicar a técnica de Modelagem de Sistemas Dinâmicos - MSD para identificar os custos fixos, que na composição do custo total proporcionem viabilidade econômica à organização. A obtenção de tal informação possibilita uma empresa fixar preços, introduzir ou abandonar produtos como resposta aos rivais no mercado no qual está ou será inserida, além de ser uma perspectiva singular dos determinantes de desempenho das organizações. Para verificar tal aplicação, foi realizado um estudo de caso para a implementação de uma empresa envasadora de água mineral no Estado do Ceará. Os resultados evidenciaram que, mediante a MSD, é possível prever os custos da produção, auxiliando, assim, os gestores da organização quanto à viabilidade econômica.
... An optimized design strategy for a single generation may not be the best option from multi-generations (Lin and Okudan 2013). Yet, most of the literature targets cost estimation from general perspectives of a single generation and basically lacks multi-generational aspects of the products (Brierley et al. 2006;Newnes et al. 2008;Eckert and Clarkson 2010;Mikaelian et al. 2011;Jiao 2012;Tyagi et al. 2013). The current paper presents a novel mathematical formulation to estimate product life-cycle cost in order to support decision-making specifically suited for a multi-generational manufacturing-based product (MGMBP) environment. ...
Product development (PD) workstream identifies and implements updates into the design of a product in order to keep up with the market demands. PD requires redesigning the product because an optimized strategy for a single generation may not be the best option in the multi-generation scenario. For this purpose, a mathematical model to estimate the product life-cycle cost for a multi-generation manufacturing-based product is proposed. The cost estimation model has three cost constituents: development cost, service cost, and associated risks cost. The article focuses on market risk and technical risk under risks, an element that most previous researchers have missed in their models. Operation risk related to uncertainty during project management has also been considered in the formulation. The model serves as a strategic decision-making tool and provides the guidelines for making project management efficient. This tool is very handy to those design engineers who have a little idea of cost-risk analysis when they design a product. It assists design teams by accurately forecasting and strategically planning a project and by making decisions which are compatible with future generations at a relatively cheaper cost. An empirical case study of a manufacturing-based product (gas turbine) has been discussed to illustrate and justify the use of proposed cost estimation model. The case study has three candidate concepts in the contention, and the best option needs to be selected. After a stringent analysis, concept-3 is found to be the most cost-effective option for most of the instances.
... Nesse sentido, para Fázio (1997) e Armstrong (2002), no âmbito do ABC, os direcionadores, sejam eles de recursos ou atividade, são índices não financeiros da eficiência dos departamentos utilizados para mensurar as atividades que de certa maneira estabelecem uma relação de causa e efeito. Ainda dentro dessa perspectiva, visando expor a estrutura e os princípios que constituem o corpo teórico e as aplicações do sistema ABC destacam-se os seguintes trabalhos, a saber: Dhavale (1988), Dhavale (1992), Yoshikawa et al. (1994), Rasmussen et al. (1999), Cogan (2003), Özbayrak et al. (2004), Brierly et al. (2006) Ademais, este artigo justifica a sua importância pelo fato de divulgar um exemplo detalhado do uso bem sucedido de tais técnicas nesse ambiente produtivo. ...
A crescente exposição das empresas à concorrência mundial exige dos gestores um conhecimento acurado a respeito dos custos de seus produtos, pois a falta de tal perspectiva pode resultar em decisões erradas. De maneira mais específica, a maior problemática dessa situação consiste na alocação dos custos fixos aos produtos. Assim, o objetivo desse artigo é avaliar e comparar a aplicação do Activity Based Costing -ABC com a Técnica Tradicional de Custeio para mensurar os custos em um ambiente de Manufatura Celular. No tocante ao método de pesquisa, esse trabalho é de enfoque quantitativo no qual o tipo de pesquisa é exploratório sem estabelecimento de hipóteses, porém, guiada pelos seus objetivos. Os resultados obtidos demonstram que a aplicação do ABC é satisfatória quando comparada com a Técnica Tradicional de Custeio. Finalmente, a aplicação do ABC em um ambiente de Manufatura Celular pode ser utilizada, eficientemente, como uma técnica para custeio de produtos. Palavras-Chave: ABC; custeio tradicional; manufatura celular. ABSTRACT The world competition demands knowledge from the managers of the organizations polish on the costs of their products, because the lack of such a perspective can result at wrong decisions. Taking this into account, the main problem of that situation consists of the allocation of the fixed costs to the products. The objectives of the present study were to evaluation and compare the application of Activity Based Costing -ABC with the Traditional Technique of costing to measure the costs in Cellular Manufacture. Hence, this paper is of quantitative focus and exploratory without establishment of hypotheses, however, guided by their objectives. The obtained results demonstrate that the application of ABC is satisfactory when compared with the Traditional Technique. Finally, the application of ABC in Cellular Manufacture can be used, efficiently, as a technique for costing of products.
... Another method developed by Cooper and Kaplan (1988) is known as activity-based costing (ABC). This method used activity time estimates such as labor rates (direct labor costs or direct labor hour rates) or volume-based rates (machine hour, material cost, or units produced) as bases to calculate overhead rates (Brierley et al., 2006). The accuracy of this method depends on the precision of time estimates required to develop a new product (Niazi et al., 2006). ...
In addition to the direct costs incurred during the vehicle production process, a manufacturer incurs certain indirect costs. These costs may be related to production, corporate operations, or selling. Cost analysts often use markup factors that relate indirect costs to the changes in direct costs. These factors are often called retail price equivalent (RPE) multipliers. However, there are concerns in using RPE multipliers in cost analysis. This study develops modified multipliers, referred to as indirect cost multipliers, and estimates them to range from 1.05 to 1.45 in the short run and from 1.02 to 1.26 in the long run.
On the basis of the accounting information system, strategic management accounting (SMA) is applied to organizations, overcoming inherent barriers. SMA strongly promotes the role of supporting managers in implementing strategies towards sustainable development. There are many studies in Vietnam that identify the factors forming SMA in companies. Previous studies have provided evidence of the relationship between SMA and business performance. However, the core problem that is still lacking is the organization of information for SMA reports. It is necessary to design a process of collecting, analyzing, processing, and reporting appropriate information to serve the strategic decisions of managers. This article conducts research on this issue with the aim of filling the practical gap and meeting the current practical needs of managers. As a result, the article identifies appropriate information for SMA reports and their relationships from sources inside and outside the company. The article proposes many directional solutions to collect information, apply SMA techniques to process and report useful long-term, wide-ranging information, suitable for strategic decision making.
Purpose
The purpose of this paper is to summarize and analyze what is known regarding activity-based costing (ABC) applications in the context of supply chain management (SCM). We present a reference framework for practical implications and areas for future research in intra-firm and inter-organizational environments.
Design/methodology/approach
.The findings underlie a systematic review methodology. Research gaps and guidance for further publications are derived from the reference framework based on ABC and SCM literature.
Findings
The review illustrates four main areas for further research: (i) determination of the role of management accounting in SCM (including supply chain finance), (ii) integration of time-driven ABC with radio frequency identification (RFID) technology and automatic data collection, (iii) analysis of inter-organizational management tools in supply chains in multiple negotiation rounds, and (iv) standardization of cost accounting data in supply chains.
Practical implications
The review provides practitioners with three main recommendations: (i) ABC applications require a solid data basis, organizational readiness, commitment from senior management, and an ABC management philosophy, (ii) open book accounting for inter-organizational cost information-sharing purposes needs institutional arrangements and economic incentive systems, and (iii) sharing costs and benefits among supply chain members requires a change of managers’ mind-set.
Originality/value
This paper reveals practical implications and provides new directions for research based on the reference framework. The paper contributes to the interdisciplinary topic between SCM and management accounting by providing a structured overview of 87 peer-reviewed articles from 1992 to 2016.
In this paper, we implement a meta-analysis of the literature on the determinants of the adoption of Activity-Based Costing. Our corpus includes 43 papers published in scientific journals. The analysis of this corpus shows the following results. The number of ABC adoption determinants studied is very high, but the average number of estimations of the effect of each of them is low. A very heterogeneous set of statistical methods and proxies has been used. Results on the effect of each determinant on the adoption of ABC are not converging. Our results of the implementation of the vote-counting method to seven of the most commonly estimated determinants show that it is impossible to conclude on a generalized statistically significant relationship, except for top management/champion support. The study of eight moderators shows almost no effect on the relationship between determinants and ABC adoption.
The focus of this study was to assess the feasibility of using giant reed (Arundo donax) for bioethanol production via pretreatment, enzymatic hydrolysis, and fermentation. Sugar and ethanol yields from giant reed were compared with those from hybrid poplar, a well-regarded woody biomass feedstock. Low (L), medium (M), and high (H) severity steam pretreatment conditions were applied to giant reed to select the set of conditions that would allow recovery of the maximum amount of sugars in hydrolysable and fermentable form. Simultaneous saccharification and fermentation (SSF) of the combined water insoluble and water soluble fractions from steam pretreated giant reed at the L severity condition of 190°C, 5 min, and 3% SO2 provided the highest ethanol yield − 79% of the theoretical maximum, which corresponds to 0.179 L ethanol/kg of raw material (based on six carbon sugars). Hybrid poplar pretreated at 200°C, 5 min, 3% SO2 produced 0.205 L ethanol/kg raw material after SSF, corresponding to 80% of the theoretical maximum ethanol yield (based on six carbon sugars). Giant reed appears to be a good alternative for biorefineries using poplar or similar hardwood feedstocks.
This paper presents a methodology for enhancing the strategic investment decision-making process for retrofit forest biorefinery (FBR) implementation. This is achieved by improving the link between retrofit process design and capital appropriation activities through cost accounting. This methodology is based on step-wise screening of retrofit alternatives where (1) traditional techno-economic analysis and multivariate stochastic risk analysis are used in the first pre-screening step, and (2) an advanced analysis framework based on steady-state process modeling, product costing using principles of activity-based costing (ABC), and panel-based multicriteria decision-making (MCDM) is used in the second screening step. In the MCDM, financial-and risk-based decision-making criteria are used. A case study considering the retrofit implementation of a biorefinery into a kraft pulp and paper mill demonstrates the methodology.
Product costing systems are critically important for businesses because they help reduce costs, price products at competitive prices, and enable strategic decisionmaking. This article reports the results of a survey designed to collect information about practices used by the North American hardwood dimension and components industry to calculate the cost of their products. Among other things, the study examined the type and reliability of cost accounting and product costing systems used by the industry, the purpose of the systems used currently versus an envisioned "perfect" system, problems associated with current systems, and ideas for costing system improvements. Results showed that two-thirds of respondents' companies are using traditional costing methods, whereas one-third are applying more modern costing practices, such as activity-based costing or lean accounting. The five main uses of cost accounting systems reported by respondents are 1) financial reporting, 2) tax reporting, 3) inventory valuation, 4) product costing, and 5) target costing. The most common problems associated with current product costing systems are missing links to management initiatives, lack of resources, lack of interfaces with enterprise software, failure to understand the three uses of costing systems (financial, operational, and strategic), and lack of costing data.
This article presents a flowchart to help managers determine whether the benefits of implementing a multiple-cost-driver system to improve the accuracy of reported unit costs will outweigh the implementa-tion costs. The flowchart disciplines decision makers to consider whether the firm produces multiple products, whether those products consume indirect resources in heterogeneous patterns, and whether the firm's competitive position truly depends on more accurately reported cost information. Careful use of this tool will increase the likelihood that investments in cost system accuracy will have positive net present values.
Despite that there is no agreed theoretical framework for strategic management accounting (SMA), the academics generally agree that SMA is external and long-term focused, assists managers in the strategic decision-making process. This exploratory study investigates the mediating effect of SMA on the relationship between Porter’s (1980) competitive strategy and firm performance. The contingency model incorporates the two dimensions of SMA, i.e. the usage of SMA techniques and the changing role of accountant in the strategic decision-making process. The results of partial least squares appear to support SMA usage mediates partially the relationship between product differentiation strategy and firm performance. There is also a positive relationship between business strategy and strategic role of accountant. However, it is unable to find support on the positive association between strategic role of accountant and firm performance.
The research under product development domain identifies and implements new concepts in design, planning, manufacturing, testing, and service sectors to keep up with the market demands. Many product developments are multi-generational in nature and may require redesigning the product at each generation because an optimized strategy for a single generation may not be the best option in the multi-generation scenarios. With this regard, this article proposes a novel product life-cycle cost estimation model to support engineering decision-making in a multi-generational product development environment. This cost estimation model develops a mathematical formulation which has three major cost constituents: development cost, service cost, and associated risks cost. The risks cost further includes three components coming from technical risk, market risk, and operation risk. The developed mathematical formulation measures the on-going multi-generational product development’s status, addresses its basic needs such as design for future reuse. It also serves as a strategic decision-making tool for successful project management. For the purpose of validating the proposed cost model, an empirical case study of a manufacturing-based product (gas turbine) is illustrated by considering three candidate concepts. This cost estimation is very handy to those design engineers who have a little idea of cost analysis when they design a product. It assists design teams by accurately forecasting and strategically planning a project and by making decisions which are compatible with future generations at a relatively cheaper cost. Thus, this article aims to provide a new direction and approach to maximize the business profit earned from multi-generational products.
This paper addresses the product costing practices, by examining the product costing method use by 46 small and medium manufacturing companies. Product costs information is very important to managers in helping them doing their functions. Because overhead cost is the only indirect product cost, this research focuses on the method use to assign factory overhead cost to each product. There are three methods of factory overhead cost allocation: plant-wide or single rate, departmental rate and activity rate. The research reveals that 66.67% of obserbed companies use single rate in assigning the overhead costs. Although in the past several years, activity-based costing is getting its popularity but plantwide and departemental rate that are considered as traditional approach in allocating overhead costs still dominated the costing practices. The result is in line to Krumwiede and Suessmair (2007). Additional finding is that in general, there is no divergence the product costing practices across the different type of manufacturing companies in observed companies. This research finding is alike to Brierly et al. (2007).
This study develops a theoretical product cost framework independent of cost assignment concepts. The framework is used in conjunction with cooperative game theory concepts to develop constructs for evaluating the accuracy of competing cost systems. Cooperative game theory provides rational, non-arbitrary criteria for assigning joint benefits and defines two possible constructs: the set of imputations and the core. Using these two constructs to define accuracy, along with an operational measure of product diversity developed in the study, formal conditions are identified where activity-based costing (ABC) is theoretically closer to the true product cost than functional-based costing (FBC). Our results, therefore, provide a theoretical foundation for ABC.
This paper focuses on the scheduling problem in convergent mixed-model production systems, where mixed-model assembly lines and multi-product fabricating lines are involved. Considering the availability of components for assembly, supplied by fabricating lines, completion times of jobs are formulated by introducing component ready times. An optimization model is then established, and a simulated annealing (SA) algorithm is implemented. The algorithm is compared to a famous heuristics, NEH, which is efficient in generating perfect schedules for a flow line independently. Results shows that the dependence between assembly lines and fabricating lines can not be ignored simply, and the SA algorithm is efficient enough and seems to be applicable in production practices to some extent.
Keywords: Mixed-Model Line, Convergent Production, Scheduling, Component Availability, Simulated Annealing
Product designers must continually assess trade-offs among various performance attributes and cost. Materials choice can play an important role in that decision-making process. Product platforms are used to meet the demand for increased product variety, while also managing costs. Because of their interdependent effects, it is possible that platforming strategies may alter preferred material choice. This paper examines the interrelationship of these early stage design choices through the application of process-based cost modeling.A case study is detailed concerning two alternative material options for an automotive instrument panel beam: a die-cast magnesium design and a conventional design (i.e., discrete stamped steel components) which allows for more component sharing than the integrated magnesium design. The effects of component sharing on product family costs are analyzed. It is shown that the magnesium design is less competitive in platformed scenarios.
This study develops a theoretical product cost framework independent of cost assignment concepts. The framework is used in conjunction with cooperative game-theory concepts to develop constructs for evaluating the accuracy of competing cost systems. Cooperative game theory provides rational, non-arbitrary criteria for assigning joint benefits and defines two possible constructs; the set of imputations and the core. Using these two constructs to define accuracy, along with an operational measure of product diversity developed in the study, formal conditions are identified where activity-based costing (ABC) is theoretically closer to the true product cost than functional-based costing (FBC). Our results, therefore, provide a theoretical foundation for ABC.
Product designers must continually assess trade-offs among various performance attributes and cost. Materials choice can play an important role in that decision-making process. Materials affect many aspects of a product and firm--architecture, manufacture, and product performance. This paper examines the interrelationship of these early stage design choices through the application of process-based cost modeling. To capture the far-ranging effects of materials selection, models are presented which forecast the costs of development, manufacture, and assembly. A case study is detailed concerning two alternative material options for an automotive instrument panel beam: a conventional design (i.e., stamped steel) and a die-cast magnesium design which affords significant parts consolidation. Results indicate that parts consolidation led to both lower assembly and development costs. These cost reductions are shown to be a direct result of the consolidation of parts in the magnesium design.
Most of the production systems, which are arranged according to cellular manufacturing, have still been using central storage sites as a continuation of their past habits and they have been supplying materials and parts to the manufacturing cells from these sites. This both violates the independence of the cells from the entire production system in terms of facilities and prevents the reduction of both materials and parts transportation. The structure with mini-storage facilities, which are located very close to the cells and serve in connection with the cells in a decentralized manner, has many benefits in comparison with the structure of the central storage. However, estimating the economic value of the decentralized approach is not easy because of the difficulties of measuring non-value adding activities. In order to provide decision support for conversion to the decentralized mini-storages, a methodology based on an activity-based costing (ABC) model was developed. The methodology was also evaluated with an example.
This paper reports and comments on the findings from a questionnaire survey on the product costing practices used by 260 UK manufacturing companies. The aims of the paper are (1) to provide evidence to ascertain the extent to which recent criticisms of product costing can be judged and (2) to compare and comment upon the theory and practice of product costing. The survey findings indicate that product costs computed to meet inventory valuation requirements are widely used for decision-making and internal profit measurement. The majority of firms, however, used both full costs and variable costs for decision-making and the findings suggest that product cost information is used in a more flexible manner than that depicted by previous studies. The paper reports on the methods used by companies to compute full product costs. Most organizations used questionable overhead allocations that are likely to result in the reporting of distorted product costs. The concluding sections of the paper discuss the possible reasons why observed practices differ from conventional wisdom and suggest areas where further research is required.
In this paper we report and comment upon findings from a questionnaire based study of the deployment of different advanced costing techniques and practices amongst 677 U.K. manufacturers operating in all sectors and with turnovers ranging from several million pounds to over £1000 million. Advanced manufacturing techniques and practices, for example, Materials Requirements Planning, Just-In-Time, Flexible Manufacturing Systems and so on were well represented amongst the sample manufacturers. The use, and planned use, of advanced costing techniques and practices, for example, Activity-Based Costing were higher than we would have expected from our own anecdotal experience and results from other studies. We have attributed this, in part, to confusion over terminology and also to the feelings of some respondents, reported at workshops we held to discuss our findings, of needing to be seen to be involved to a greater or lesser extent with these developments. We also observed an apparent lack, in some cases, of relevant costing tecniques and practices to support different types of advanced manufacturing techniques and practices and also the less than complete development of accounting systems. These findings, it is suggested, may be due to a number of reasons including, inter alia: a lack of understanding of advanced costing techniques and practices; a conscious decision by management that the benefits to be gained by extending systems in this way are outweighed by the costs.
One of the most striking features emerging from a review of the management accounting research literature during the past decade has been the increasing emphasis given to empirical studies of management accounting practice. These empirical studies have consisted of cross-sectional questionnaire surveys and more in-depth case study research that has focused on practices within a specific company. Recently, comprehensive questionnaire surveys of management accounting practices in several different countries have been published. The aim of this paper is to identify and comment on the major conclusions that can be derived from these surveys and to discuss some of the issues arising from them that require more intensive case study research.
Anderson (1995) suggests that the critical success factors change at different stages of implementation for information innovations such as ABC. Using mostly contextual and organizational factors found to be associated with ABC success in prior studies, this study tests how these factors affect ten stages of the ABC implementation process. Based on a survey of U.S. manufacturing firms, different factors become important as higher stages of ABC implementation are reached. Evidence is also found that the direction and level of importance for many factors varies by stage. For instance, a high quality information system may lead to rejecting ABC before adoption or abandoning it after implementation has started, but it also appears to enable reaching the highest implementation stage. Studies that combine ABC firms from several implementation stages to test certain success factors may distort their significance levels or reject other factors that are only important for certain stages.
This study examines the association between activity-based costing and manufacturing performance. Results using a cross-sectional sample of manufacturing plants indicates that extensive ABC use is associated with higher quality levels and greater improvements in cycle time and quality, and is indirectly associated with manufacturing cost reductions through quality and cycle time improvements. However, on average, extensive ABC use has no significant association with return on assets. Instead, we find weak evidence that the association between ABC and accounting profitability is contingent on the plant’s operational characteristics.
Just as Europe consists of countries with different languages, cultures, histories, wealth levels and systems of jurispridence, and exhibits a mosaic of different tastes and preferences, so do accounting's roles and functions differ widely across European countries. Differences in management accounting practices and control approaches abound. the question is no longer whether there is variety but its extent and explanation. In considering European variety in management accounting, it may be asked what trends if any are discernible in management accounting practices generally? What historical factors have conditioned management accounting wherever and in whatever form it exists? Are there links between management accounting research and practice? Are there competing theories within the field which are nation-specific? To what extent is the implementation of emergent cost-management approaches evident within companies? Such issues are explored in this book which also provides some basis for exploring national specifities in management accounting whilst offering room to ponder over its commonalities. Distinguished European commentators provide comprehensive analysis of past and existing management accounting practices and conceptual thinking. The contributors give a sense of whether modern management accounting approaches are evident in enterprises withing their nation and discuss findings of empirical investigations in constructing `country perspectives'. Each chapter successfully presents an informed overview of country features indicative of a rich and diverse European tapestry of management accounting thought and practice. Ultimately the book provides a useful starting point not only for making cross-national comparative observations but also for identifying opportunities and trends in management accounting systems changes.
This paper contains the results of a 1994 survey of activity-based costing (ABC) in the U.K.'s largest 1000 companies. The survey was designed to ascertain the adoption rate of ABC in these companies, the specific application of ABC, the views of users on the success and importance of ABC, the views of non-ABC users on ABC and the possibilities for future research. The results indicate that although ABC is now used by a significant number of large companies its impact is often restricted in scope and it has also been rejected by a sizeable number. The majority of companies have still to come to a decision on its use. Among users it is applied throughout all of the core areas of management accounting. There is thus potential for considerable growth in its adoption among non-users. It is an on-going development which gives considerable opportunity for researches interested in change to pursue work on this topic in a variety of the sub-areas of management accounting.
The results of a mailed survey designed to compare product-costing practices employed by New Zealand (NZ) and United Kingdom (UK) manufacturing companies is reported. The study's main findings are that, when company size is removed as an explanatory factor, there appear to be few systematic differences in the product-costing practices of the two countries, although there is a suggestion of marginally less sophisticated product-costing practices in NZ. Widespread use of theoretically deficient costing practices in both countries adds to the growing evidence of a time lag between the theory and practice of management accounting.
This paper reviews the results of two U.K. surveys of activity-based costing (ABC) in the U.K.’s largest companies. These provide an opportunity to assess the changes that have occurred in the ABC adoption status of companies over a recent 5-year period. For the ABC users, some comparative information is provided on the nature of the ABC systems in use, their designers, the uses to which they have been put and the levels of success and importance that participants attribute to them. For the non-users, the reasons for their lack of commitment to ABC are explored.
This paper summarizes and reviews research of product costing practice in Europe. The review considers research into how many accounting systems firms use, product cost structures, the use of blanket overhead rates in product costing, the bases used to calculate overhead rates, the application of product costs in decision making and product pricing, and the use of activity-based costing. Although significant progress has been made over the last decade in describing costing practices in Europe, further work remains to be done. Having identified gaps in, and questions arising from, previous research, the paper concludes with recommendations for future research.
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Accounting innovations
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Management accounting practices
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