critical review of activity based techniques and incorporate information on the following areas: technical, historical, economic and behavioural aspects of its emergence, implementation and operation, evaluation and conclusion

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**ASSIGNMENT BRIEF**

present a report which will research and analyse relevant
literature concerning the activity based techniques. Your report should provide a
critical review of activity based techniques and incorporate information on the
following areas: technical, historical, economic and behavioural aspects of its
emergence, implementation and operation, evaluation and conclusion.

Groups must submit:?
1. The final group report as specified below.
2. A SINGLE word document incorporating:-
• Minuted notes of group meetings.
• A note from each individual group member specifying the precise nature of their
contribution to the final product, and estimating the time involved. This will
represent the agreed group position. The right is reserved to vary the grade
awarded to individual group members should circumstances warrant.

**CASE STUDY**

Assessment Task
In the late 1980s, following the publication by the Harvard Business School of
several case studies on innovative costing practices by American firms, a new cost
accounting approach was advanced by Cooper and Kaplan. This was initially called
‘transaction costing’ (Johnson and Kaplan,1987) but soon became known as ‘activity
based costing’ (ABC).
The Harvard case studies were based on practical experiments by Cooper, Kaplan
and colleagues in firms such as Schrader Bellows and John Deere Component
Works. Together with Johnson’s 1986 Weyerhaeuser Corporation study, they were
milestones in the development of ABC as they were the first cases to illustrate how it
would aid management (Jones and Dugdale, (2002)
The development of ABC has been described as associated with two important
networks (Jones and Dugdale, 2002); the ‘Harvard network’ led by Kaplan and
Cooper and later joined by Johnson; and the Computer-Aided Manufacturing,
International (CAM-1) network, later entitled ‘Consortium for Advanced
Manufacturing International’. The sponsors of CAM-1 were organisations concerned
to improve cost management practices, including the largest USA manufacturing
firms, big professional accountancy firms and government agencies.
Both the Harvard network and the CAM-1 network described conventional
management accounting systems as obsolete and inadequate, claiming they
prevented organisations from enhancing efficiency and profitability and impeded the
ability of American firms to compete successfully (Johnson, 1992; Jones and
Dugdale, 2002). Traditional management accounting was described as being in a
major crisis because it could not provide managers with relevant information. ABC
systems were advocated as the solution for restoring the relevance of accounting.
ABC was described as a ‘revolutionary’ cost management system that, if
appropriately, would enable American firms to recover their competitiveness and
profitability.
Since its inception in the 1980s, ABC has received considerable attention from
consultants, business schools and the business media (Innes and Mitchell, 1998;
Jones and Dugdale, 2002). It has increased in popularity and attracted new
adherents by changing its features and core arguments in response to its opponents’
criticisms. Two main phases of ABC development have been identified (Jones and
Dugdale, 2002)

(a) Until the late 1980s, ABC was applied mainly to product costing, that is to obtain
product costs of a product.
(b) Second, from the 1990s until today it has been used to provide managers with a
better understanding of costs through the identification of activities, hence aiding
managers in managing their organisation’s activities. ABC has thus evolved from
a simple cost accounting approach into a management approach labelled ‘activity
based management’.
(c) Activity based management refers to the actions managers take, on the basis of
an ABC study to improve the efficiency of activities and the profitability of
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products. The logical thrust behind all of these is that cost control and
management should focus on the outputs of a process rather than on the inputs
to that process. These techniques are most applicable to service sector
organisations, the public sector and the indirect costs in a manufacturing
environment.

**REQUIREMENT**

You are requested to present a report which will research and analyse relevant
literature concerning the activity based techniques. Your report should provide a
critical review of activity based techniques and incorporate information on the
following areas: technical, historical, economic and behavioural aspects of its
emergence, implementation and operation, evaluation and conclusion.
YOUR REPORT SHOULD COVER THE FOLLOWING MAIN AREAS
1. The emergence of activity based costing.
2. Features of activity based costing and traditional costing systems.
3. Implementation of activity based costing.
4. An evaluation of activity based costing.
5. The emergence of activity based management and its usefulness.
6. Conclusion.

**MARKING SCHEME**

Assessment criteria
Introduction 5 marks
The emergence of ABC 15 marks
Features of ABC 15 marks
Implementation of ABC 15 marks
Evaluation ABC 15 marks
Emergence of ABM 15 marks
Conclusion 5 marks
Bibliography 5 marks
Presentation 5 marks

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