Cost Accounting Essay

Questions arise as to why ABC implementation is successful in certain companies and fails in others. Based on the contingency theory, researchers have argued that the reasons for different degrees of ABC success could be due to the different contextual factors faced by each firm. These have led researchers to recognize assessing factors that influence ABC success implementation as an important research area. The following are among the research that have been carried out to examine factors that influence ABC success: Anderson [18]; Shield [3]; McGowan and Klammer [19]; Krumwiede [20]; and Anderson and Young [21] This article has two main objectives; the first objective is to identify research gaps based on the revision of previous research and the second objective is to propose theoretical research framework for current research. This article is organized as follows: Section II presents a discussion of selected articles related to factors influencing ABC implementation and gaps or limitations of previous studies and suggestions for current research are stated in the section III and IV. The framework for current research is provided in section V, Section VI defines each research variable and the final section presents the conclusion. II. PREVIOUS RESEARCH In this section, selected ABC implementation empirical 144 Abstract—In today’s advanced manufacturing and competitive environment, accurate costing information is crucial for all the kinds of businesses, such as manufacturing firms, merchandizing firms, and service firms. Argued to be superior to the traditional volume-based costing system, Activity-Based Costing system (ABC) has increasingly attracted the attention of practitioners and researchers alike as one of the strategic tools to aid managers for better decision making. The benefits of ABC system and its impacts on companies’ performance have motivated numerous empirical studies on ABC system and it is considered as one of the most-researched management accounting areas in developed countries. Previous research on ABC have examined pertinent issues related to ABC implementation such as the levels of ABC adoption in various countries, the reasons for implementing ABC, the problems related to ABC and the critical success factors influencing ABC. This paper reviews the research on ABC carried out within the last decade, from 1995-2008, and from the review research gaps are identified. Specifically, this paper examines the selection of factors influencing successful ABC implementation, variables used by previous research and the definitions and operationalization of the variables. The review reveals that past research concentrated mainly on behavioral, organizational, and technical variables as the main determinants of ABC success but very little research have been done to examine the roles of organizational culture and structure. Based on the research gaps identified, a research framework for future research is provided. Index Terms—Advanced Manufacturing Activity-Based Costing, ABC Success Environment, I. INTRODUCTION In today’s competitive and continually changing business environment, firms need to be vigilant of the impacts of the changes in the business environment and devise appropriate strategies to survive and prosper. Advancements in manufacturing and communication technologies have drastically changed the ways businesses conduct their activities. Adoption of advanced manufacturing technologies such as robotics and computerized manufacturing have resulted in significant changes in the manufacturing cost structure which have led academics and practitioners to argue that the traditional costing methods are no longer sufficient within this new manufacturing environment [1] (Johnson and Kaplan, 1987). This had resulted in the change from the traditional volume-based cost model to new costing methods such as Activity Based Costing (ABC) [2]. Due to its ability in providing more accurate costing information and enhancing firms’ performance, ABC is International Journal of Trade, Economics and Finance, Vol. 1, No. 2, August, 2010 2010-023X studies, which spanned 1995-2008 periods, were collected from four prominent refereed accounting research journals, in management accounting field: Journal of Management Accounting Research, Accounting, Organizations and Society, Management Accounting Research and British Accounting Review. Factors used by previous research to investigate the effect on ABC success implementation are summarized, and stage of ABC implementation also is outlined. A. Technical Variables Early studies of ABC adoption and implementation undertaken by previous researchers concentrated on technical factors, such as identification of main activities, selection of cost drivers, problem in accumulating cost data. Example of these research are Cooper [9], Morrow and Connelly [22]. However, technical factors alone may not be adequate to explain the factors influencing ABC success implementation. Cooper et al. [23] argued that the key problem during ABC implementation stage is that companies only focus on technical factors. They suggested that to make ABC implementation more effective, non-technical factors such as involvement of non-accounting in ABC implementation process, top management championship, adequate training program to employees about the objectives and benefits of ABC should be emphasized as well. Similar opinions were expressed by Shield [3] and Shields and McEwen [14]. Shield (1995) found no significant relationship between technical factors and ABC success. Shields and McEwen [14] also highlighted that sole emphasis on the architectural and software design of ABC systems leads to the failure of ABC implementation. Therefore many researchers have suggested that new variables should be considered to investigate factors influencing ABC success. B. Contextual, Behavioral and Organizational Variables Recognizing the research gaps in identifying factors that may affect ABC success, academicians shifted their focuses from technical factors to other variables, such as contextual, behavioral and organizational, culture, as well as organizational structure. Anderson [18] conducted a longitudinal investigation of ABC process in General Motor (GM) from a period of 1986 to 1993. In his research, he examined the effects of organizational variables and contextual variables, and segmented ABC implementation into four major stages, initiation, adoption, adaptation and acceptance. He found that organizational factors, such as top management support and training for the ABC system affected various stages of ABC significantly, while contextual variables, such as competition, relevance to managers’ decisions and compatibility with existing systems produced different degree of impact on different stages of ABC. Shield [3] examined the relationships between diversity of behavioral, organizational and technical factors and the success of ABC implementation. She employed Shield and Young’s [24] framework and summarized behavioral and organizational variables as top management support, adequate resources, training, link ABC system to performance evaluation and compensation, non-accounting ownership, link ABC to competitive strategies as well as clarity of ABC objectives. She found that top management support, linkage to quality initiatives and to personal performance measure (pay/appraisal), implementation of training and resource adequacy were the significant predictors in explaining ABC success. She also found that technical variables were not associated with ABC success. Shield’s findings are supported by other researchers, such as Shield and McEwen [14], who argued that a significant cause for unsuccessful implementations of ABC of several companies could be due to the emphasis of architectural and software design of the ABC system and less attention given to behavioral and organizational issues, which were identified by Shield [3]. Krumwiede and Roth [25] also stated that barriers of ABC implementation can be overcome if firms could give importance to behavioral and rganizational variables identified by Shield [3]. Similarly, Norris [26] agreed with Shield’s [3] findings that the association between ABC success and behavioral and organizational variables is stronger than with technical variables. She further highlighted that the impact of behavioral, organizational and technical should be focused at individual level. McGowan and Klammer [19] conducted a survey of 53 employees from 4 targeted sites in the U. S. o examine whether employees’ satisfaction levels are associated with ABC implementation by They also measured their perceptions of the factors associated with the degree of satisfaction, such as top management support; the degree of involvement in the implementation process; objectives clearly stated; objectives shared; training; linkage to performance evaluation system; adequate resources; information quality and preparer over user. Their results indicated that employees’ satisfaction with ABC implementation was positively related with clarity of objectives and quality of ABC information. Gosselin [15] carried out a survey of 161 Canadian manufacturing companies to examine the effects of strategic posture and organizational structure on adoption and implementation of general forms of Activity-based costing. He segmented the ABC implementation stage into adoption and implementation. The research findings showed that a prospector strategy was associated with manager decision to adopt ABC, while centralization and formalization were significantly associated with ABC success implementation. Krumwiede [20] surveyed U. S manufacturing firms to study how contextual factors, such as the potential for cost distortion or size of firms; organizational factors, such as top management support, training or non-accounting ownership, affect each stage of ABC implementation process. His findings showed that the different factors affected the various stages of implementation of ABC and the degree of importance of each factor varies according to the stage of implementation. Contextual factors, such as usefulness of cost information, IT existence, less task uncertainty and large organizations were related to ABC adoption. Moreover, organizational factors, such as top management support, non-accounting ownership, and implementation training affect ABC success implementation. 145 International Journal of Trade, Economics and Finance, Vol. 1, No. 2, August, 2010 2010-023X In another study by Anderson and Young [21], the relationship between organizational and contextual variables, such as organizational structures, task characteristics, management support, information technology and ABC success was examined. The result confirmed the importance of organizational factors (top management support and adequacy resources) during the ABC implementation stage. In South Africa, Sartorius et al. [27] carried out a mail survey to investigate the effect of organizational factors such as top management, adequate resources, coherence with organizational goals and strategy on ABC success. They found top management support and resources were the crucial factors in explaining ABC success. In the UK, Innes and Mitchell [4] and [12] surveyed the extent of ABC adoption among largest firms. The study aimed to find out factors influencing ABC success by using behavioral and organizational variables, and it was found that top management influenced ABC success significantly. In another study conducted by Khalid [28] using a questionnaire survey among the largest 100 firms in Saudi Arabia, ABC adoption was found to be positively related to diversity of products. In Malaysia, Ruhanita et al. [29] conducted a mail survey and a case study to examine that factors influencing ABC success, especially at adoption stage. They found the significant factors were cost distortion, decision usefulness, information technology and organizational factors. In addition, the findings showed that decision usefulness, top management support, link ABC to performance measure and compensation influenced the ABC success adoption significantly. A case study of one Chinese manufacturing firm was carried by Lana and Fei [30] in China. Their research aimed to examine some key success factors pertinent to ABC implementation within Chinese organizational and cultural setting. The research findings showed that top management support, hierarchical and communication structure and high proportion of dedicated professionals were the significant factors in determining ABC success implementation. Majid et al. [7] used a case study approach to describe the process of ABC implementation in a Malaysian service company and a Malaysian manufacturing company. In this research, they categorized ABC implementation into initiation and adoption, design, implementation and use of information. The purpose of the research was to find out the problems faced during ABC implementation, He found that the factors determining ABC success were top management support, suitable ABC software, and finally, ensuring that all affected employees understand and participate in the ABC implementation stage. And they also found that at different stages of ABC, the dominant factors influencing ABC success were also different. Colin et al. [31] adopted behavioral and organizational factors summarized by Shield (1995) to examine factors influencing the adoption and degree of success of ABC systems and determinants of that success. In their research, the targeted research population was manufacturing and service firms in the UK. They found that top management support, non-accounting ownership, adequate training provided to ABC determined the ABC success. Besides behavioral, organizational and technical variable, some researchers also indicated that the dimensions of national cultures could affect the level of ABC success [32, 33]. Brewer [32] used Hofstede’s taxonomy of work-related cultural values to examine the relationship between national culture and Activity-Based Costing system. In the study, Hofstede [34]’s work was applied to the case of Harris Semiconductor (HS), which has implemented ABC at plants in Malaysia and the USA. The results showed that the level of ABC success in Malaysia was higher than that of U. S due to high-power-distance and collectivist cultures in Malaysia. In addition, Supitcha and Frederick [33] also included national culture’s dimension into framework in a case study of one Thai state-owned enterprise’s budgeting system. They found that due to cultural differences, modifications were required when the organizations in Thailand tried to implement ABC system in Thai environment. Apart from national culture, corporate culture factors were also tested by prior research. Baird, Harrison and Reeve [17] conducted a study to investigate the relationship between the extent of ABC adoption and the organizational variables of size and decision usefulness of cost information and business unit culture. In their research, data were collected by a mail survey questionnaire and samples were randomly selected from business units in Australia. The research finding showed significant relationships between ABC adoption and decision usefulness, cultural dimensions of outcome orientation and tight verse loose control. Baird, Harrison and Reeve [16] examined the relationship between success of activity management practices and organizational factors (top management support, training, link to performance evaluation and compensation, and link to quality initiatives), and organizational culture (outcome orientation, team orientation, attention to detail, as well as innovation). They adopted a survey questionnaire method on randomly chosen business units in Australia. The findings showed that two organizational factors (top management support, link to quality initiatives) explained the variations in success of activity management practices, such as ABC, and outcome orientation and attention to detail of organizational culture were associated with ABC success. They also stressed that compared with organizational culture, organizational factors had stronger associations with the ABC.

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Ethical Decision making by School Principals Essay Principals are faced with the challenge of managing schools and there is need for them to be ethical, respectful, inspiring, creative and knowledgeable about methods of instruction and the culture of the school and curriculum. These principals are also faced with the challenge of knowing and identifying areas of support that is able to enhance the school’s mission and also manage the areas that impede the achievement of a stated mission of the school. Since the needs of students are ever changing, they should also be in a position to make both smaller and larger adjustments that could be beneficial to the school and easily manageable by the organization in the management of these decisions. (Sousa, 2003, pp. 195-198). A decision is termed as ethical when it is able to bring about positive results and does not harm other people or the third party. These decisions are able to bring forth respect, trust, fairness and caring, responsibility and demonstrate good citizenship. When a decision accomplishes the needs of people together with their purposes, it is then termed as an effective decision. Ethically sound decisions are mostly advanced by two critical aspects namely discernment and discipline. For a decision to poses the aspect of discernment, it requires judgment and knowledge. The strength of character on the other hand, makes up a good decision and this takes moral change and the will power to be able to do what needs to be done (Hoy Tarter 2004, pp. 56-60). Ethical decision making calls for good leadership from principals. Leadership may be described as the authority or ability of an individual or individuals to lead others towards the achievement of a goal. It involves directing and influencing others towards the accomplishment of the stated common objectives and involves responsibility and accountability for the group. There are various leadership styles that are used today in many organizations and institutions. The autocratic type of leaders apply unilateralist while dominating their team-members in order to achieve a particular objective. However, this method often results to resistance from the team- members, as this style generally requires constant pressure and a lot of direction to get things done. On the other hand, this style could be more effective in urgent situations requiring urgent action (Schiminke, 1998, pp. 107-110). In the Laissez-Faire leadership, little control is exercised by managers over their groups. This allows the team-members to sort out their duties and obligations but the manager is not in any way involved with them. This style of leadership however is ineffective at certain circumstances since the team is left floundering with limited motivation and direction. Laissez- faire is effective in cases whereby a manager leads a team that is highly skilled and motivated and these people have in the past produced excellent work. The Democratic leader on other hand often uses participation and the groups’ teamwork towards attaining a collaborative decision. This style focuses on communication between the leader and the team and hence a positive climate for achieving results is created. The leaders consult their teams before making a decision while still in control of the team. These leaders allow the team to make decisions on how certain duties will be carried out and by whom (Schiminke, 1998, pp. 107-110). In addition, a good democratic leader is one who approves participation by team members and delegation of duties or tasks is done wisely. This kind of a leader values the points put forward from them and also encourages any group discussion. He also empowers the team through motivation. On leadership styles include a coercive leader, authoritative. Leader, affiliative leader, pace setting and a coaching leader. A coercive leader demands obedience, which should be instantaneous and applies initiative, achievement and self-control. In times of crisis or company turn around, this style is considered to be more effective but it mostly creates a negative climate for the performance in an organization. The authoritative leader on the other hand is considered to be one of the most effective as this leader inspires employees to follow a vision, facilitate change and creates a strong organizational climate that results in positive performance. The affiliative leadership values people, their emotions and their needs and relies on friendship and trust to promote flexibility, innovation and risk taking. A pacesetting leader can create a negative climate because of the high standards he or she sets. This style works best in attaining quick results from highly motivated individuals who value achievement and take the initiative. Lastly, the coaching leader builds a positive climate by developing skills that will foster long-term success. This type of leader also delegates responsibly, and is skillful in issuing assignments that are quite challenging. Leadership entails organizing people in a bid to achieve the stated goals of the group. It is therefore essential that leaders should posses certain basic qualities that will enable them to be effective leaders in whatever situation or task they undertake (Guy, 1990 pp. 105-107). Leaders should display a good work ethic that will enable other employees to emulate. A good work ethic includes: being on time, being organized giving praise to employees, being well prepared for meetings and having good communication within the venture that will go a long way towards achieving emotional and financial success. Therefore a leader should set an example with an ethical set of values for other managers and employees. For a leader to be effective, he/she should be willing to constantly learn at the same time integrate the knowledge they have acquired through learning into their leadership style. They must also develop skills that will promote them into being good leaders. Another quality of a good leader is that they should constantly keep up with the current trends in leadership and be aware that the leadership styles are constantly changing. In other words these leaders should be open to change. A good leader should also be able to mobilize people and acquire their trust in the process. Good leaders should also have the ability to communicate effectively with their subordinates communication is an essential aspect since it involves both listening and sending messages or telling others what needs to be done. Moral leaders are in a position to produce good moral leadership. They mostly apply restraint and power in their leadership. They are willing to accept any results without imposing control on other people. This is stewardship. It enables leaders to accept their faults which are human instead of shielding themselves under their authority and status. Ethics can be described as the codes of conduct that guide on how one should behave regarding moral duties and virtues. These moral principles guide a person in determining what is wrong or right. Morality by principals can be termed as personal ethics. This is because personal ethics reflect the expectations of people of all works in the society. Ethics has got two aspects: the ability to determine right from wrong, propriety from impropriety and good from evil. The second perspective concerns the commitment to perform an action that is proper, right and good. The principles of personal ethics include: trustworthiness and honesty, concern for the well being of others preventing harm refusing to take unfair advantage, respect for the autonomy of others and basic justice. Ethics as displayed by principals in schools or any other leaders could be classified as under written and unwritten codes of ethics: codes of ethics are the efforts which are systematic in nature and are used in defining the right conduct. They also provide guidance and help in the installation of confidence in various aspects of life from the government and all organizations. The main guidance is reflected in the decision making process especially where values seem to conflict. Written codes of ethics can be made known by an organization, professional or jurisdiction. On the other hand unwritten codes that exist and that help us in our lives are more effective than the written ones. Un written codes of ethics include rules such as honesty, security, loyalty among others. These unwritten codes of ethics mostly arise from family and cultural tradition and can also be found in workplace. These written and unwritten codes of ethics mostly arise from family and cultural tradition and can also be found in workplace. These written and unwritten codes of ethics are found in the society and they help one in establishing their personal belief system. Ethical behaviors should be a part and parcel of an individual’s daily routine (Murphy McMurty, 2000. pp. 110-115). I believe that Principals need to make strategic decisions since society and environment are dynamic and this provides them with a means that is strategic in nature that could enable them consider the external environment by focusing on the strength of the school organization, reducing weaknesses in school and also identify all the available opportunities that could put the school at a better position to be able to gain a competitive advantage. School principals are able to make an ethically defensible decision when the decision is well thought considering all the formal possible angels meaning that everybody takes part in decision making. In addition, ethically sound decisions in corporate all the possible solutions regarding the positive and negative outcomes of the decision. The decisions made by school principles need to involve a consultative process, team or group process or delegated duties to the staff members. This will help principals to come up with an ethically sound decision that will have a positive impact to all the members of the society which includes the students. Today, school leaders are the people who are accountable ethically, legally and morally for any decisions that they make in schools. Dempster and Parry (1999) note that the schools pressure mainly arise from four sources that is pressure of involving non-educationalists in the decision making in schools; changes in the growth of knowledge and applying the new advanced technology in learning processes; increased social problems such as suicide, violence and unemployment. This means that school leaders are constantly faced with ethical dilemmas while making decisions in schools hence resulting in conflicting ethical principles. Therefore how ethics/morals impact on decision-making is profound as this could easily change the way society operates. Foster (1986) also notes that it is the actions by the officials of the school that will strongly determine personal codes of ethics and values (Shapiro, 2000, pp. 120-125). On the ethical decision making by principals in schools, Denig and Quinn (2001) proposed a philosophical model with two moral principles namely; care and justice. They argue that most of the decisions that are made by school leaders, are mainly based on formalism which is policy and law and this is aimed at bringing about the greatest good to all (utilitarianism). In other words, this approach clearly views decision making as a rational approach that involves the use of universal principles. The decision maker performs what is right that could result in good deeds to all rather than individualism hence equity becomes the desirable outcome. They also point out that it is only through making decisions by collaborative means that these leaders can be able to analyze the dilemmas and get prepared to encompass the principle of working together with the school system and this eventually results in making decisions that are ethical (Sousa, 2003, pp. 195-198). Greenfield (19991) on the other hand argues that school leaders experience distinct sets of demands concerning ethics. He notes that schools being moral institutions are designed to bring for the social norms and other principles. They should be able to make decisions that are morally acceptable. He further notes that although schools are charged with the responsibility of creating moral values and making moral decisions by dedicating themselves to promote the well-being of their students, it is surprising that the same students have virtually no right to express themselves to what goes on in their schools and it is for these reasons that the conduct of these school leaders need to be moral (Kowalski, 2001, pp. 5-98). Robert Starratt (1991) also talks of equality in social arrangement benefits by arguing that today’s social arrangement results to unequal benefits among people. He argues that school principles should not only behave ethically but also be responsible individuals. Lastly, Green field argues that the authority of the principal is moral and teachers should be convinced that the decisions make by the principal reflects all the values that they support (Nutt, 2002, pp. 50-54). Kidder (1995) defines an ethical dilemma as the responsibilities that people face in making choices between two rights cherished values that conflict are the principle cause of dilemmas. For instance a principal is bound to be faced with a dilemma if at all he/she cherishes both the teacher and student and the teacher decides to enact a policy that will result in low expectations. Some philosophers and thinkers have come up with a number of guidelines that could help to solve these dilemmas faced by school leaders. They argue that leaders should be able and willing to act along the set standards of ethics. They could also address and also should be caring and conscious reflection whenever they lead other people (Nutt, 2002, pp. 50-54). School leaders could also form ethics committees to help them solve ethical dilemmas as these committees could prove helpful in raising the awareness concerning ethical issues, advising educators and also in the formulation of codes of ethics. A quality decision that is made by a school principal will depend on a number of factors made, extent to which others are able to generate a quality solution, how the problem is structured and the degree of commitment. Moreover, decisions made in schools require a lot of staff decision and support. School principals also need to understand the culture of their schools while attempting to make any decisions as this will establish whether the decision made is appropriate for the school. Therefore, these head teachers need to analyze and comprehend any relevant and comprehend any relevant information presented to them together with data. They also need to gather and measure evidence, issue judgments and finally make the necessary decisions. Creativity is essential as these will help in solving any anticipating problems hence development of opportunities for the school. Finally, school principals should be in a position to demonstrate quality judgment. This will enable them to know how and when they need to make any decisions among others. Decisions made by school principals could be autocratic, consultative, Group or Delegated decisions. An autocratic decision is that which the school principal makes it himself / herself by use of the available information or gathered from other groups or people. This therefore requires these school leaders to make appropriate and quick decisions when expected to do them at a particular point in time consultation on the other hand means that a problem has to be shared amongst individuals in order to obtain collective views or ideas but the school principal has to make the final decision afterwards.