Extent of applicability of Activity Based Cost System Applied study on manufacturing companies in Allahabad
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Date
2016
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Sam Higginbottom Institute of Agriculture, Technology & Sciences (SHIATS)
Abstract
Significant changes have occurred in the modern business environment and intensive use of automation and technology has resulted in massive change in the structure of production costs. As a corollary emergence arose for a new system of costs accounting to meet and keep pace with these developments. Among the modern systems of cost accounting is Activity Based Costing which is popularly known as ABC system. This system tries to address the problem of allocating indirect industrial costs which is considered the mother of problems in cost accounting, where traditional cost accounting system is unable to solve it fully. This study aims at achieving the following objectives: 1- To study the conceptual framework of ABC System in order to interpret and explain the importance of ABC system and to draw a comparison between the traditional costing system and ABC system. 2- Identify the extent of prevalence of the application of ABC system in industrial companies. 3- Recognize the benefits of implementing the ABC system from the point of view of these companies. 4- Determine the difficulties that hinder the application of ABC system in companies. To achieve these objectives, the study has been divided into two sections: theoretical aspect and practical aspect. The theoretical aspect consists of three chapters; the first chapter addresses the introduction of study, conceptual framework for traditional costs systems and conceptual framework for activities based cost system. The second chapter reviews the researches and available literature on activity based cost system. While the third chapter deals with the research methodology. xi The other part of the study, that is the practical aspect, involves field study conducted on the basis of a questionnaire that had been designed to elicit information. The questionnaire was designed with two set of questions in order to explore the views of industrial companies in relation to the ABC system. A total of 22 questionnaires were distributed to the study sample. The sample of the study includes the manufacturing companies of Allahabad city. Out of the 22 questionnaires distributed, 18 have been completed and collected and the responses rate is in the range of 81.82%. Statistical analyses of data using SPSS revealed the following main results: 1- Activity based cost system can be considered as an alternative to traditional way for indirect costs accounting. 2- The underlying philosophy of activity based cost system is products consume the activities and activities consume the resources. 3- Out of the population 38.9% of companies surveyed applied activity based cost system in calculating the cost of the product. 4- All the companies surveyed believe that activity based cost system has various benefits, such as more accurate calculation of the cost in comparison to traditional costing, enhance the costs control and help in taking sound administrative decisions. 5- All the companies surveyed believe that there are difficulties hindering the application of activity based cost system in these companies, such as division of business in clear and specific activities, lack of required qualifications and professional incapability in implementation of the system and high cost of the system application. On light of the foregoing results, the researcher recommends that there is a need to pay attention to the following: 1- The companies should gradually start introducing activity based cost system in its cost system. xii 2- There is a necessity of convincing the administration of these companies with the importance and benefits of activity based cost system 3- Companies must overcome all difficulties impeding the application of the activity based cost system. 4- The companies must organize training programs for accountants from both practical and professional. These companies must adopt the use of computer in processing all their operations.
Description
Thesis titled “Extent of Applicability of Activity Based Cost System: Applied Study On Manufacturing Companies in Allahabad submitted in partial fulfillment of the requirements for the award of the degree of Doctor of Philosophy in Commerce (Accountancy) by Shaban E.A. Salem.