Description
Activity-based costing was created in response to the problem Johnson & Kaplan noticed. Johnson and Kaplan (1987:1) argued that, today's management accounting information, driven by the procedures and cycle of the organization's financial reporting system, is too late, too aggregated, and too distorted to be relevant for managers' planning and control decisions.
The Traditional Cost Model
The classic product costing model, in harmony with Generally Accepted Accounting Principles (GAAP) of the United States, maintains that
cost of products = |
direct materials |
+ direct labor |
|
+ manufacturing overhead |
Typically, the most difficult challenge facing cost accountants involves attributing the manufacturing overhead costs to the product. The traditional approach of assigning overhead costs to products uses a two-stage process. The first step allocates costs of manufacturing support centers to production centers, then combines all allocated and overhead costs in production centers to...
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Boer, G. (1994). “Five modern management accounting myths,” Management Accounting (USA, January), 22–27.
Cooper, R. (1987). “Does your company need a new cost system?” Journal of Cost Management (Spring), 45–49.
Cooper, R. (1988a). “The rise of activity-based costing–part one: What is an activity-based cost system?” Journal of Cost Management (Summer), 45–54.
Cooper, R. (1988b). “The rise of activity-based costing–part two: When do I need an activity-based cost system?” Journal of Cost Management (Fall), 41–48.
Cooper, R. (1989a). “The rise of activity-based costing–part three: How many cost drivers do you need, and how do you select them?” Journal of Cost Management (Winter), 34–46.
Cooper, R. (1989b). “The rise of activity-based costing–part four: What do activity-based cost systems look like?” Journal of Cost Management (Spring), 38–49.
Cooper, R. (1990). “Cost classifications in unit-based and activity-based manufacturing cost systems,” Journal of Cost Management for the Manufacturing Industry (Fall), 4–14.
Cooper, R. and R. S. Kaplan (1991). The Design of Cost Management Systems, Prentice Hall, Englewood Cliffs.
Drucker, P. F. (1963). “Managing for business effectiveness,” Harvard Business Review (May–June), 59–66.
Denna, E. L., J. O. Cherrington, D. P. Andros, and A. S. Hollander (1993). Event-Driven Business Solutions, Business One Irwin, Homewood, Ill.
Harrison, G. C. (1921). “What is wrong with cost accounting?” N.A.C.A. Bulletin.
Johnson, H. T., and R. S. Kaplan (1987). Relevance Lost! The Rise and Fall of Management Accounting, Harvard Business School Press, Boston, MA.
Kaplan, R. S. (1988). “One cost system isn't enough,” Harvard Business Review (January–February), 61–66.
Player, R. S., and D. E. Keys (1995a). “Lessons from the ABM battlefield: Getting off to the right start,” Journal of Cost Management (Spring), 26–38.
Player, R. S., and D. E. Keys (1995b). “Lessons from the ABM battlefield: Developing the pilot,” Journal of Cost Management (Summer), 20–35.
Player, R. S., and D. E. Keys (1995c). “Lessons from the ABM battlefield: Moving from pilot to mainstream,” Journal of Cost Management (Fall), 31–41.
Turney, P. B.B. (1992). Common Cents: The ABC Performance Breakthrough, Cost Technology, Portland, OR.
Swain, M. R., and E. L. Denna (1998). “Making new wine: Useful management accounting systems,” International Journal of Applied Quality Management (volume 1), 25–44.
Author information
Authors and Affiliations
Editor information
Rights and permissions
Copyright information
© 2000 Kluwer Academic Publishers
About this entry
Cite this entry
Swain, M.R., Fawcett, S.E. (2000). ACTIVITY-BASED COSTING. In: Swamidass, P.M. (eds) Encyclopedia of Production and Manufacturing Management. Springer, Boston, MA . https://doi.org/10.1007/1-4020-0612-8_16
Download citation
DOI: https://doi.org/10.1007/1-4020-0612-8_16
Publisher Name: Springer, Boston, MA
Print ISBN: 978-0-7923-8630-8
Online ISBN: 978-1-4020-0612-8
eBook Packages: Springer Book Archive