Abstract

This paper is intended to focus on some of the possible challenges organizations are most likely to experience with the implementation of activity based costing. These challenges are not specific to any particular industry or organization. The results of this research reveal that while there are a lot of hurdles associated with implementation of ABC, three barriers stand out. Despite the high levels of success and benefits to the companies that use the activity based costing method, the level of its implementation still remains relatively low due to lack of support from top management, lack of adequately trained personnel on activity based costing and unnecessarily costly by most organizations. These obstacles can only be handled with adequate employee training on ABC, and provision of enough resources to support the implementation process. There is still need for further studies on the subject of obstacles to ABC implementation.

Keywords: Activity based costing, challenges, implementation

Research Outline

Research Topic: The Hurdles of Implementing Activity Based Costing (ABC) in an Organization

I. Introduction

A. Hook: The success of any organization starts with how well it makes decisions on matters regarding its strategies and processes.   

B. Introductory sentence: Activity based costing method presents various benefits and advantages to organization but its implementation rates are still very low. 

D. Thesis: Despite the high levels of success and benefits to the companies that use the activity based costing method, the level of its implementation still remains relatively low due to lack of support from top management, lack of adequately trained personnel on activity based costing and unnecessarily costly by most organizations.

II. Body Paragraph I

A. Topic sentence: Most organizations fail at implementing activity based costing due to lack of support from top management. 

B. Supporting sentence 1: Majority of top managers in various organizations considers ABC to be the same as other costing methods in terms of effectiveness. 

C. Supporting sentence 2: Top management’s lack of familiarity with the activity based costing method challenges successful implementation of the system.  

D. Supporting sentence 3: “Reasons such as impact on performance assessment of managers, lack of familiarity with ways these systems impact on management decisions and lack of  belief  and  reliance  on  budget  and  financial information in performance evaluation result  in  lack  of senior  management support  for new costing and  budgeting systems and become an obstacle  in the application of these systems” (Ramezani, 2015, p. 33)

III. Body Paragraph II

A. Topic sentence: Successful implementation of activity based costing requires adequately trained manpower and lack of it results in a failure.

B. Supporting sentence 1: Employees tasked with the role of implementing and using the activity based costing requires high levels of knowledge on the process. 

C. Supporting sentence 2: Lack adequate training on the ABC system leads to frustration and automatic resistance from employees.

IV. Body Paragraph III

A. Topic sentence: Activity based costing is considered unnecessarily costly by most organizations. 

B. Supporting sentence: “Five out of eight said that ABC is too costly, Spending too much time, not our priority” ((Hasan, 2017, p. 06).

C. Supporting sentence 2: Most business go for processes and strategies that help save on operation costs and maximizes profits. 

D. Supporting sentence 3: Compared to other methods of costings, ABC requires high levels of employee knowledge, accounting skills and company resources. 

V. Conclusion

A. Restate thesis: ABC experiences implementation challenges in various organizations because of its high costs of implementation and operation, lack of training or employee familiarity with the process and failure of organization managers to offer adequate support for the implementation of activity based costing method within an organization. 

D. Final thoughts: The benefits of ABC are much greater than the costs or other implementation challenges and further studies should be conducted on how to reduce the impacts of the implementation challenges of ABC.

References

A comparative study of traditional activity-based costing and time-driven activity-based costing at a University hospital in South Korea. (2019). Research Journal of Finance and Accounting. https://doi.org/10.7176/rjfa/10-10-01

Durana, M. (2019). Research review on activity-based costing system (ABC): ABC's development, applications, challenges, and benefits. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3347713

Hasan, A. (2017). Implementation problems of activity based costing: A study of companies in Jordan. British Journal of Economics, Management & Trade, 17(1), 1-9. https://doi.org/10.9734/bjemt/2017/32855

Joao Major, M. (2014). Implementing activity-based costing in the telecommunications sector: A case study. Journal of Telecommunications System & Management, 03(01). https://doi.org/10.4172/2167-0919.1000111

Pietrzak, ?., Wnuk-Pel, T., & Christauskas, C. (2020). Problems with activity-based costing implementation in Polish and Lithuanian companies. Engineering Economics, 31(1), 26-38. https://doi.org/10.5755/j01.ee.31.1.24339

Ramezani, A. (2015). Barriers to Implementing Activity-Based Costing in Listed Companies on Tehran Stock Exchange. ICP Business, Economics and Finance, 2(1), 27-34.