CHAPTER 10

System Design:
Activity-Based Costing and Management

Umali, Jessa V.
15-60458

Yohanon, Kristel Marie R.

15-33281

BSAM 3103

1
Table of Contents

Introduction……………… 3
Topic
Background……………
4
Subtopic…………… 5
Definition of terms……… 8
Review questions………… 9
Exercises……………… 13
Problems…………………… 15
Synthesis…………… 24
Bibliography…………… 25

2
 Introduction

The most difficult task in computing accurate unit cost lies in

determining the proper amount of overhead cost to assign to each job,
a unit of product or service activity.
Today, accountants recognize that manufacturing and providing
services are related activities. Thus, they direct attention to the
cost of these activities. The activity-based management system links
resource consumption to the activities a company performs and costs
the activities to products or customers. Activity-based management
uses activity-based costing (also called transaction-based costing) to
measure and control these relationships.
Most organizations that use activity-based costing have two
costing systems-the official costing system that is used for preparing
external financial reports and the activity-based costing system that
is used for internal decision making and for managing activities.

3
 Topic Background

Activity-Based Costing
Activity-based costing (ABC) is a costing method that is designed
to provide managers with cost information for strategic and other
decisions that potentially affect capacity and therefore “fixed”
costs. ABC is ordinarily used as a supplement to, rather than as a
replacement for the company’s usual costing system.
Activity based costing (ABC) assigns manufacturing overhead costs
to products in a more logical manner than the traditional approach of
simply allocating costs on the basis of machine hours. Activity based
costing first assigns costs to the activities that are the real cause
of the overhead. It then assigns the cost of those activities only to
the products that are actually demanding the activities.

In activity-based cost accounting, a budgeting process employing

knowledge of activities and driver relationships to predict workload
and resource requirements in developing a business plan. Budgets show
the predicted consumption and cost of resources using forecast
workload as a basis. The company can use performance to budget in
evaluating success in setting and pursuing strategic goals; this
activity is part of the activity-based planning process.

4
Subtopic

Advantages and Limitations of ABC

Activity-based costing provides several benefits to the manager,
namely
1. More accurate products costs
2. Better data for decision making
3. Tighter cost control
ABC has also several limitations, the chief of which is the difficulty
and high costs involved with gathering data relating to activity
centers and cost drivers.

Design of an Activity-Based Costing System

The steps or activities required in designing an ABC system are
1. Process Value Analysis (PVA)
2. Identifying Activity Centers
3. Assigning Costs to activity Centers
4. Selecting Cost Drivers
Step 1. Process Value Analysis involves the following steps.
a.) Analyze activities required to make the product or perform the
service.
b.) Classify each activity as value-added or non-value-added.
c.) Identify ways to either reduce or eliminate the non-value-
added activities.
Step 2. Identify activity Centers
An activity center can be defined as a part of the production
process for which management wants a separate reporting of the cost of
the activity involved.
Step 3. Assign Cost to Activity Centers
Assign costs to the activity centers where they are accumulated
while waiting to be applied to products.
Step 4. Select Cost Drivers
This involves assigning costs from the activity center to the
product using appropriate cost drivers.

5
Activity-Based Management
Activity-based management (ABM) is a management tool that involves
analyzing and costing activities with the goal of improving efficiency
and effectiveness.
Activity-based management (ABM) is a procedure that originated in the
1980s for analyzing the processes of a business to identify strengths
and weaknesses. Specifically, activity-based management seeks out
areas where a business is losing money so that those activities can be
eliminated or improved to increase profitability. ABM analyzes the
costs of employees, equipment, facilities, distribution, overhead and
other factors in a business to determine and allocate activity costs.

Activity Analysis
To be competitive a firm must assess each of its activities based on
its need by the product or customer, its efficiency, and its value
content. A firm performs an activity because it is:

 Required to meet the specification of the product or service or

satisfy customer demand
 Required to sustain the organization
 Deemed beneficial to the firm
Cost-driver analysis
This technique examines, quantifies and explains the effects of the
cost driver on the cost of an activity.

Performance measurement
This involves the identifications of the work perform and the results
achieved by an activity process, or organizational unit. Performance
measure include both financial and nonfinancial. Examples of financial
performance measures are the cost per unit of output, return on sales,
and cost of every department’s high-value-added and low-valued-added
activities.
Nonfinancial performance measures evaluate operating characteristics
of manufacturing process and measures of or feedbacks from customers
or personnel. Examples of nonfinancial performance measures are the:
a number of customer complaints
b customer satisfaction
c number of defective parts or output
d number of output unit

6
 e cycle-time
f on-time delivery rate
g number of employee suggestion
h scores on employee morale

Opportunity Costing Concepts

One significant factor that managers should include in their decision

process information is the capacity usage of the plant and the other
resources of the entity. Capacity usage information is a critical
signal of the potential relevance of opportunity costs, the benefit
lost when one chosen option precludes the benefits from an alternative
option.
When a firm has excess capacity, that is, it is able to produce the
current demand as well as handle a special order or new product, no
opportunity cost is present. When the plant is operating at full
capacity, opportunity costs are an important consideration because
the decision to produce a special order or add a new product line can
cause the reduction, delay, or loss of sales of products and services
currently offered.

7
Definition of terms:
 Unit levels activities- which are performed each time a unit is
produced
 Batch-level activities- which are performed each time time a
batch of goods is handled or processed
 Product-level activities- which are performed as needed to
support the production of each different type of product
 Facility- level activities- which simply sustain a facility’s
general manufacturing process.
 Operational ABM- enhances operation efficiency and asset
utilization and lowers cost. It focuses on doing things right and
performing activities more efficiently. Among the management
techniques that are applied in operational ABM are activity
management, business process reengineering total quality
management and performance management.
 Strategic ABM- on the other hand, attempts to alter demand for
activities and increase profitability at the current or improved
activity efficiency. It focuses on choosing the activities for
the operations.
 Bench marking- involves the search for the best practices
anywhere to identify ways to improve the operation for a task,
activity, or process.
 Cause-and-effect diagram- maps out causes that affect an
activity, process, stated problem or desire outcome.
 A Pareto analysis- is a histogram of the cost drivers that
contribute to the total cost. Most analyses under this technique
show that 20 percent of the cost drivers are responsible for 80
percent of the total cost incurred.

8
REVIEW QUESTIONS AND PROBLEMS

I Questions

1 What three levels of overhead cost application are available

to a company?
-The three levels available are: Level 1, in which a
company uses a plantwide overhead rate; Level 2, in which a
company uses departmental overhead rates; and Level 3, in
which a company uses activity-based costing.
2 Why are new approaches to overhead cost application, such as
activity based costing, needed in many companies today?
-New approaches to costing are needed because events of the
last few decades have made drastic changes in many
organizations. Automation has greatly decreased the amount
of direct labor required to manufacture products; product
diversity has increased in that companies are manufacturing
a wider range of products and these products differ
substantially in volume, lot size, and complexity of
design; and total overhead cost has increased to the point
in some companies that a correlation no longer exists
between it and direct labor.
3 Why are departmental overhead rates sometimes not accurate
in assigning overhead cost to products?
-The departmental approach to assigning overhead cost to
products relies solely on volume as an assignment base.
Where diversity exists between products (that is, where
products differ in terms of number of units produced, lot
size, or complexity of production), volume alone is not
adequate for overhead costing. Overhead costing based on
volume will systematically overcost high-volume products
and undercost low-volume products.
4 When designing an activity-based costing system, why should
PVA (process value analysis) always be starting point?
-Process value analysis (PVA) is a systematic approach to
gaining an understanding of the steps associated with a
product or service. It identifies all resource-consuming
activities involved in the production process and labels
these activities as being either value-added or nonvalue-
added. Thus, it is the beginning point in designing an
activitybased costing system since management must know
what activities are involved with each product before
activity centers can be designated and cost drivers
established. Also, PVA helps management to eliminate any

9
 non-value-added activities and thereby streamline
operations and minimize costs.
5 What four general levels of activity can be identified a
company?
-The four general levels of activities are:

 Unit-level activities, which are performed each time a

unit is produced.
 Batch-level activities, which are performed each time
a batch of goods is handled or processed.
 Product-level activities, which are performed as
needed to support specific products.
 Facility-level activities, which simply sustain a
facility’s general manufacturing process.
6 In what three ways does activity-based costing improve to
costing system of an organization?
-First, activity-based costing increases the number of cost
pools used to accumulate overhead costs. Second, it changes
the base used to assign overhead costs to products. And
third, it changes a manager’s perception of many overhead
costs in that costs that were formerly thought to be
indirect (such as depreciation or machine setup) are
identified with specific activities and thereby are
recognized as being traceable to individual products.
7 What are the two chief limitations of activity-based
costing?
-The two chief limitations are: First, the portion of
overhead costs that relate to facility-level activities are
still usually allocated to products on some arbitrary
basis, such as machine-hours or direct labor-hours. Critics
of activity-based costing argue that facility-level
activities account for the bulk of all overhead costs in
some companies. Second, high measurement costs are involved
in operating an activity-based costing system. That is, the
system requires the tracking of large amounts of detail and
the completion of many separate computations in order to
determine the cost of a unit or product.
8 Can activity-based costing be used in service organizations?
-Yes, activity-based costing can be used in service
organizations. It has been successfully implemented, for
example, in railroads, hospitals, banks and data service
companies.
9 What is resource driver?

10
 -A resource driver is a measure of the quality of resources
consumed by an activity.
10 What is an activity driver?
-An activity driver is a measure of frequency and intensity
of demands placed on activities by cost objects.
11.In regard to ABC, what is two stage allocation?
-Two-stage allocation is a procedure that first assigns a
firm’s resource costs, namely factory overhead cost, to
cost pools, and then to cost objects.
12.What are two major advantages of activity-based management
(ABM)?
-Two major advantages of ABM are: a. ABM measures the
effectiveness of the key business processes and activities,
and identifies how they can be improved to reduce costs and
improve the customer value. b. ABM improves the management
focus by allocating resources to key value-added
activities, key customers, key products, and continuous
improvement methods to maintain the firm’s competitive
advantage.

II. TRUE or FALSE

True 1.) In activity-based costing, facility-level costs should not
be included in product costs for internal management reports that
are used for decision making. However, companies frequently
include facility-level costs in product costs in order to meet
external reporting requirements.
True 2.) Batch-level activities are performed each time a batch of
goods is handled or processed.
False3.) When there is automation, product diversity, and little
correlation between overhead cost and direct labor, a plantwide
overhead rate based on direct labor is most appropriate.
True 4.) In activity-based costing a separate overhead rate is
computed for each activity center by dividing the estimated
overhead cost in the activity center by the total expected
activity for the activity center.
False5.) In an activity-based costing system there is no overhead
over or under applied because the costing system is much more
accurate.
True 6.) Activity-based costing involves a two-stage allocation in
which overhead costs are first assigned to departments and then
to jobs on the basis of direct labor hours.

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True 7.) When a company shifts from a traditional cost system in
which overhead is applied based on direct labor-hours to an activity-
based costing system in which there are batch-level and product-level
costs, the unit product costs of high-volume products typically
decrease whereas the unit product costs of low-volume products
typically increase.
True 8.) Process value analysis (PVA) consists of systematically
analyzing the activities required to make a product or portion a
service. PVA identifies all resource-consuming activities and labels
activities as either value-added or non-value added.

III. Exercises
Exercise 1

12
Listed below are various activities observed in Tulip Company. Each
activity has been classified as unit level, batch level, product level
or facility level in nature.
Activity Activity Example of Example of
Classification traceable Cost Drivers
cost
a. Materials are Labor cost; Number of
moved from the depreciation receipts;
receiving dock to of equipment; pounds
product flow lines space cost. handled
by a material-
handling crew………… Batch level

b. Direct labor Direct labor Direct labor

workers assemble cost; hours
various products…… Unit level indirect
labor cost;
labor
benefits

c. Ongoing training Space cost; Hours of

is provided to all training training
employees in the Facility level costs; time; number
company………… administratio trained
n costs

d. A product is Product level Space cost; Hours of

designed by a supplies design time;
specialized design used; number of
team………… depreciation engineering
of design change
equipment orders
Batch level Labor cost; Number of
e. Equipment setups supplies setups;
are performed on a used; hours or
regular basis……… depreciation setup time
of equipment
f. Numerical control Unit level Power; Machine
machines are used supplies hours;
to cut and shape used; number of
materials………… maintenance; units
depreciation

Required:
Complete the table above by listing examples of traceable costs and
example of cost drivers for each activity.

*Answers
Exercise 2

13
Listed below are several terms relating to activity-based costing:

Process value analysis Plant wide overhead rate

Facility level Low volume
High volume Batch level
Activity centers Two stage
Product level Unit level
Volume Stage

1. A single overhead rate used throughout an entire plant operation

is known as a plant wide overhead rate.
2. The major problem with using direct labor-hours or machine- hours
as the basis for assigning overhead cost to products is that these
bases rely on volume as the sole factor in overhead cost
assignment.
3. Activity-based costing involves a two stage allocation process, in
which the first stage assigns overhead costs to activity centers
and the second stage assigns overhead costs from activity centers
to products and services.
4. Process value analysis which involves a systematic analysis of the
activities required to make a product or perform service, is the
beginning point in activity-based costing.
5. Unit-level activities, such as the consumption of power, are
performed each time a unit is produced and arise as a result of
the total volume of production going through a facility.
6. Batch-level activities, which are performed each time a batch of
goods is handled or processed, include task such as placement of a
purchase order.
7. Product-level activities, which are performed as needs to support
the production of a particular product, include task such as
maintaining parts inventories.
8. Facility-level activities just sustain a facility’s general
manufacturing process and include items such as insurance or
general factory management.
9. The use of activity-based costing often causes a shift in overhead
costs from high-volume products to low-volume products, thereby
causing the unit cost of the low-volume products to sharply
increase.
10. One of the benefits of activity-based costing is that it
increases the number of cost pools, or activity centers used to
accumulate and assign overhead cost to products and services.

IV. Problems

14
Problem 1
Peejay Autoparts, Inc. previously used a cost system that allocated
all factory overhead costs to products based on 350 percent of direct
labor cost. The company has just implemented an ABC system that traces
indirect costs to products based on consumption of major activities as
indicated below. Compare the total annual costs of product X using
both the traditional volume-based and the new ABC system.

Activity Annual Cost Cost Product X Cost

Driver Quantity Driver
Consumption
Labor P300,000 P30,000 P10,000
Machining 20,000 hrs P500,000 800 hrs
Setup 10,000 hrs P100,000 100 hrs
Production order 2,000 orders P200,000 12 orders
Material 1,000 P20,000 5 requisitions
handling requisitions
Parts 12,000 parts P480,000 18 parts
administration

*Answer
Cost Systems Pool Rate Cost Driver Consumption Cost

Traditional cost system 350% P10,000 P35,000

ABC system
Labor 10% P10,000 P 1,000
Machining P25/hour 800 hours 20,000
Setup P10/hour 100 hours 1,000
Production order P100/order 12 orders 1,200
Material handling P20/requisition 5 requisitions 100
Parts administration P40/part 18 parts 720
24,020

Problem 2

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Zash Manufacturing has four categories of overhead. The four
categories and expected overhead costs for each category for next year
are listed below:
Maintenance P200,000
Material handling 32,000
Setups 100,000
Inspection 120,000

Currently overhead is applied using a predetermined overhead rate,

based on budgeted direct labor hours. Fifty thousand direct labor
hours are budgeted for next year.

The company has been asked to submit a bid of proposed job. The plant
manager feels that getting this job would result in new business in
future years. Bids are based on full manufacturing cost plus 20
percent.
Estimates for the proposed job are as follows:

Direct materials P6000

Direct labor (1000 hours) P10,000
Number of material moves 12
Number of inspections 10
Number of setups 2
Number of machine hours 500

In the past, full manufacturing cost has been calculated by allocating

overhead using a volume-based cost driver, direct labor hours. The
plant manager has heard of a new way of applying overhead that uses
cost pools and cost drivers.
Expected activity for the four activity-based cost drivers that would
be used are:

Machine hours 20,000

Material moves 1600
Setups 2500
Quality inspections 41,000

Required:
1. (a) Determine the amount of overhead that would be allocated to
the proposed job if direct labor hours is used as the volume-
based cost driver.
Answer: Total overhead = P200,000 + P32,000 + P100,000 + P120,000
= P452,000
Overhead rate = P452,000 / 50,000 direct labor hours
= P9.04 per direct labor hour

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 Overhead assigned to proposed job = P9.04 x 1,000 direct
labor hours = P9,040

(b) Determine the total cost of the proposed job.

Answer: Direct materials P 6,000
Direct labor 10,000
Overhead applied 9,040
Total cost P25,040
(c) Determine the company’s bid if the bid is based on full
manufacturing cost plus 20 percent.
Answer: Company’s bid = Full manufacturing cost x 120%
= P25,040 x 120%
= P30,048
2. (a) Determined the amount of overhead that would be applied to
the proposed project if activity-based cost drivers are used.
Answer:
Maintenance: P200,000 / 20,000 = P10 per machine hour
Materials handling: P32,000 / 1,600 = P20 per move
Setups: P100,000 / 2,500 = P40 per setup
Inspection: P120,000 / 4,000 = P30 per inspection

Overhead assigned to proposed job:

Maintenance (P10 x 500) P5,000
Material handling (P20 x 12) 240
Setups (P40 x 2) 80
Inspection (P30 x 10) 300
Total overhead assigned to job P5,620
(b) Determined the total cost of the proposed job if activity-
based costing is used.
Answer:
Direct materials P 6,000
Direct labor 10,000
Overhead applied 5,620
Total cost P21,620

(c) Determine the company’s bid if activity-based costing is used

and the bid is based on full manufacturing cost plus 20 percent.
Answer:
Company’s bid = Full manufacturing cost x 120% = P21,620 x 120%
= P25,944
The bid price of P25,944 was determined as follows:

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 Direct materials P6,000
Direct labor 10,000
Overhead assigned:
Maintenance (P10 x 500) P5,000
Material handling (P20 x 12) 240
Setups (P40 x 2) 80
Inspections (P30 x 10) 300
Total overhead assigned to job 5,620
Total cost P21,620
Markup 120%
Bid price P25,944

V. Multiple choice
Item I through 10 are based on the following information.
Wonders Inc. manufactures radios in two different styles:

Radio Model Annual Sales in Units

Starry 10,000
Polka 16,000

Wonders uses a traditional volume-based costing system in applying

factory overhead using direct labor pesos. The unit prime costs of
each product were as follows:

Starry Polka
Direct Materials P38 P25.40
Direct Labor
1.2xP14.60= 17.52
0.9xP14.60= 13.14

The predetermined overhead rate was 350% (P1,349,040 / 385,440).

Direct Labor budget per annual sales:

Starry radio 10,000xP17.52 P175,200

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 Polka radio 16,000xP13.14 210,240
Total P385,440

Factory overhead:
Engineering and Design P404,712
Quality Control 269,808
Machinery 519,616
Miscellaneous Overhead 134,904
Total P1,349,040

Wonder`s controller had been researching activity-based costing and

decided to switch to it. A special study determined Wonder`s two radio
models were responsible for the following proportions of each cost
driver.

Starry Polka
Engineering and Design 40% 60%
Quality Control 45% 55%
Machinery 60% 40%\
Miscellaneous Overhead 35% 65%

1.) Using traditional costing, applied factory overhead

per unit for the starry model is calculated to be:
a P61.32. c. P43.42.
b P65.35. d. P45.99.
2.) Using traditional costing, applied factory overhead
per unit for the Polka model is calculated to be:
a P61.32. c. P43.42.
b P65.43. d. P45.99.

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3.) Using activity-based costing, applied factory overhead
per unit for the Starry model, based on Engineering and
Design, is calculated to be:
a P32.38. c. P16.19.
b P12.14. d. P4.72.
4.) Using activity-based costing, applied factory overhead
per unit for the Starry model, based on Quality Control,
is calculated to be:
a P32.38. c.P16.19.
b 12.14. d. 4.72.
5.) Using activity-based costing, applied factory overhead
per unit for the Starry model, based on Machinery, is
calculate to be:
a P32.38 c. P16.19.
b P12.14 d. P4.72
6.) Using activity-based costing, applied factory overhead
per unit for the Starry model, based on Miscellaneous
Overhead, is calculated to be:
a P32.38. c. P16.19.
b P12.14. d. P4.72.
7.) Using activity-based costing, applied factory overhead
per unit for the polka model, based on Engineering and
Design, is calculated to be:
a P15.18. c. P5.48.
b P9.27. d. P13.49.
8.) Using activity-based costing, applied factory overhead
per unit for the Polka model, based on Quality Control,
is calculated to be:
a P15.18. c. P5.48.
b P9.27. d. P13.49
9.) Using activity-based costing, applied factory overhead
per unit for the Polka model, based on Machinery is
calculated to be:
a P15.18. c. P5.48.
b P9.27 d. P13.49.

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10.) Using activity-based costing, applied factory overhead
per unit for the Starry model, based on Miscellaneous
Overhead, is calculated to be:
a. P15.18 c. P5.48
b. P9.27 d. P13.49
e.
f. Items 11 through 14 are based on the following
information.
g.
h. Shine Co. manufactures laser printers. It has
outlined the following overhead cost drivers:
i.
j. Overhead Cost Overhead Budgeted
Budgeted
k. Cost Pool Driver cost Level for
Overhead Rate
l. Cost Driver

m. Quality
n. control Inspections P64,800 1,080
P60
o. Machine
p. Repetitions Repetitions 132,000 1,100
120
q. Accounts Invoices
r. Receivable 900 30
30
s. Other Direct Labor
t. Overhead hours 48,000 4,000
12
u. Cost
v.

w.
x. Shine Co. had an order for 700 laser
printers. Following is a list of production
requirements for the order:
y.
z. Number of Inspections
175
aa. Number of repetitions
180

21
 ab. Number of invoices processed
5
ac. Direct labor hours
650
11.) Using activity-based costing , applied factory
overhead for the 700 laser printer order based on the
number of inspection is calculated to be:
a P7,800. c. P150.
b P10,500 d. P21,600.
12.) Using activity-based costing, applied factory overhead
for the 700 laser printer order based on the number of
repetitions is calculated to be:
a P7,800 c. P150,
b P10,500 d. P21,600
13.) Using activity-based costing, applied factory overhead
for the 700 laser printer order based on the number of
invoices is calculated to be:
a P7,800 c. P150.
b P10,500 d. P21,600
14.) Using activity-based costing, applied factory overhead
for the 700 laser printer order based on the number on
direct labor hours is calculated to be:
a P7,800 c. P150.
b P10,500 d. P21,600
a.
b. Overhead Budgeted Budgeted Cost
Cost Overhead
c. Cost pool Overhead Cost Driver Level
Driver rate
d. Machinery
e. Depreciation/ P168,640 27,200
Machine hrs P6.20
f. Maintenance
g. Factory
h. Depreciation/ 129,250 27,500
Machine hours 4.70
i. Utilities/
j. Insurance
k. Product design 554,400 38500
Hours in design 14.40

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 l. Material
m. Purchasing/ 1.078.000 134,750 Raw
Materials 8.00
n. Storing
o.
p.
q.
r.
s.
t.
u.
v. Two current products orders had the following
requirements:
w.
x. Men’s Razor
Women’s Razor
y. Units produced and sold 20,000
26,000
z. Direct labor hours 30
40
aa. Pounds of raw materials 860
750
ab. Hours in design 20
23
ac. Machine hours 65
50
ad.
ae.
15.) Utilizing ABC, how much overhead is assigned to the
order for men’s razor’s based on machine hours?
a. P403.00 c. P708.50
b. P310.00 d. P545.00
e.
16.) Utilizing ABC, how much overhead is assigned to the
order for women’s razors based on machine hours?
a. a. b. b.
P403.00 P310.00
c. c. P708.50
d. d. P545.00
e.
f.
17.) Utilizing ABC, how much overhead is assigned to the
order for men’s razor’s on hours in design?
a. P218.00 c. P331.20
b. P250.70 d. P288.00

23
18.) Utilizing ABC, how much overhead is assigned to the
order for women’s razors based on hours in design?
a. P218.00 c. P331.20
b. P250.70 d. P288.00
19.) Utilizing ABC,how much overhead is assigned to the
order for men’s razors based on pounds of raw materials?
a. P6000 c. P5332
b. P6880 d. P8175
20.) Utilizing ABC, how much overhead is assigned to the
order for women’s razors based on pounds of raw
materials?
a. a. P6000 c. c. P5332
b. b. P6880 d. d. P8175

24
 e.
f.
g.
h.

i. Synthesis
j. Activity based costing recognizes that the special
engineering, special testing, machine setups, and others are
activities that cause costs—they cause the company to consume
resources. Under ABC, the company will calculate the cost of the
resources used in each of these activities. Next, the cost of each of
these activities will be assigned only to the products that demanded
the activities. Activity based costing has grown in importance in
recent decades because (1) manufacturing overhead costs have increased
significantly, (2) the manufacturing overhead costs no longer
correlate with the productive machine hours or direct labor hours, (3)
the diversity of products and the diversity in customers' demands have
grown, and (4) some products are produced in large batches, while
others are produced in small batches
k. There are theoretical and empirical accounts of
ABC implementation processes and techniques in
different studies. This study is a synthesis of
past studies on ABC implementation in
organizational contexts. Using a literature
analysis of published papers over the last ten
years, the study develops a typology of
implementation issues by three major themes: types
of organizations, methodologies used to explain the
implementation processes, and the factors leading
to the adoption or abandonment of an ABC system.
The findings suggest that ABC is used in
manufacturing, service, and even government sector
organizations, organizational, economic and
sociological theories are used to explain the
implementation processes and finally, technical and
human factors affect the implementation or
abandonment of an ABC system in any organization.
The comprehensive account of an ABC system
implementation related major considerations
reported in this paper will enhance the knowledge
base of the interested academic researchers and
practitioners. This research can be extended to a
quantitative analysis of the themes reported here
 to improve the reliability and the validity of the
conclusions reached in the paper.
l.
m.
n.
o.
p.
q.
r.
s.

t. Bibliography
u.

( (https://www.accountingcoach.com/activity-based-costing/explanation)

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y.
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center/supply-chain-glossary/supply-chain-glossary-
a/activity-analysis.html
aa.
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VzItVlRfYnc/view
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 ae.
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