Benefits and barriers for implementation of activity based costing Dissertation

Benefits and barriers for implementation of activity based costing systems in selected Asian countries - Dissertation Example Analysis of the three countries is provided. Ultimately, the paper concludes that activity-based costing could be extremely beneficial for Asian businesses. However, activity-based costing is virtually guaranteed to fail if it is imposed top-down or haphazardly. Barriers to implementation include different organisational and social cultures, different accounting norms and regulations, regulatory frameworks, fiscal policies, varying relationships to stakeholders, and other factors. If activity-based costing is to succeed, it must grow organically from the needs and behaviors of the organisations it is applied to. Introduction As Asian countries' financial operations become more closely attuned with and leveled against the West, it is likely that the model of activity-based costing (hereafter known as ABC) will spread to Asian enterprises. This paper analyzes three countries: The Hong Kong SAR, Malaysia and mainland China. These countries are immensely different from the West where act ivity-based costing is more common, with different fiscal policies, regulatory backgrounds, macro-economic statistics and behaviors, regional problems, resources, relations to customers and suppliers, and so forth. Ultimately, activity-based costing could be extremely beneficial for Asian businesses. However, activity-based costing is virtually guaranteed to fail if it is imposed top-down or haphazardly. ... 1.1: Definition Activity-based costing is defined by Rockford Consulting (1999) as â€Å"a method of allocating costs to products and services. It is generally used as a tool for planning and control. It was developed as an approach to address problems associated with traditional cost management systems, that tend to have the inability to accurately determine actual production and service costs, or provide useful information for operating decisions†. Without ABC, managers can make errors in calculation and strategy, particularly in companies with many â€Å"products or services†. The idea is to attribute costs to activities more than products themselves. This requires that processes are mapped and understood sufficiently to be priced or measured. A comprehensive idea of the organisation's process structure, overhead, engineering times, etc. have to be honestly calculated. Ultimately, much like scientific management, inefficiencies are exposed and accounting rectified in areas that were never expected to be problematic. Averkamp (2011) offers an example of activity-based costing that illustrates its benefits. Assuming two products engineered by the same company, â€Å"Product 124† being a â€Å"low volume item which requires certain activities such as special engineering, additional testing, and many machine setups because it is ordered in small quantities† and â€Å"Product 366† â€Å"a high volume product—running continuously—and requir[ing] little attention and no special activities†. Under a traditional costing regime, Product 124 has very low machine hours, thus it would have little overhead â€Å"spread† to it; but this is not an accurate representation of its cost. Similarly, Product 366 would apparently seem to cost a lot because of its