Implementing Activity-based Costing : Consequences of Accounting´s Role; a Warehouse Company Case
Kivi, Tuomas (2020)
Åbo Akademi
2020
Julkaisu on tekijänoikeussäännösten alainen. Teosta voi lukea ja tulostaa henkilökohtaista käyttöä varten. Käyttö kaupallisiin tarkoituksiin on kielletty.
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe202003128011
https://urn.fi/URN:NBN:fi-fe202003128011
Tiivistelmä
The implementation of the activity-based costing requires understanding of the non-financial elements of organisations. Thus, activity-based costing as a theory combines different areas of the company in order to better execute the allocation of the overhead costs. The activity-based costing method is a useful method for a more precise cost allocation. However, the stages of the method reveal its weaknesses. The precise analysis of the cost behaviour requires a lot of measurement and the measuring tools also generate costs. It is an important decision where to draw the line when deciding how precisely the costs should be allocated. At some point the costs exceed the benefits.
Structuration theory and its elements can be used as a theoretical lens to investigate the organisational change. Accounting can be seen as a social system that has also artefacts (formal systems, i.e. the activity-based costing method). This study investigated how a change in one artefact affected the accounting as a social system.
The activity-based costing method provided numeral information of costs per each warehouse. This information was then compared to the income per warehouse to analyse the profitability per each individual warehouse and customer agreement. This analysis is a very useful tool for the pricing decisions, and also for the future repairment investment decision, since it generates mutual understanding about the profitability for the managers of the case company. The outcome of the implementation of activity-based costing was a prioritisation of the warehouses, meaning that the most profitable warehouses are ranked highest when deciding about the repairment investments.
According to structuration theory, the three dimensions of a structure are signification, domination and legitimation. This study finds accounting as a structure that has elements from all the three dimensions. Structuration theory provides a framework that can be used to describe the elements of accounting. As Englund et al. (2011, p. 505) argue, accounting acts at the same time as an interpretive structure, consists of norms that the members of the organisation follow, and is a facilitator for exercising power.
The activity-based costing method was used to generate a profitability analysis of the case company´s warehouses. This information is used to prioritise the importance of each warehouse and customer agreement. The prioritisation is important, because the machinery and equipment of the case company requires repairments. However, all the necessary repairments cannot be done at the same time, since there are financial limitations. The case company is handling an issue where they must decide the sequence of repairment investments.
The implementation of activity-based costing is a drastic change for the whole organisation. It emphasises the role of accounting´s data in the organisation. It means that the case company now has calculations that can be trusted. This information becomes vital when prioritising the investment needs, calculating the profitability of the new customer agreements and making the pricing decisions.
The change of the costing system emphasises the importance of accounting´s communicative role. The findings from the cost analysis must be communicated to the whole organisation, since they provide useful information for many kinds of issues. In the case company these issues are, for example, new customer agreements, investment decisions, pricing and profitability analysis. The implementation of activity-based costing establishes mutual understanding about the strategically important areas of business—in this case, mainly the warehouses. The calculations show what warehouses and customer agreements are profitable and suitable for a profitable future. This information must be recognised in the decision-making.
Related to the domination, money has always had power. The more precise information links the accounting closer to the governance of company. The accounting creates room to exercise power with financial realities and different kinds of rules (for example case company´s purchasing guideline) that affect the behaviour of members of the organisation. The accounting department also has the power to affect the decisions of discussed issues by providing targets for the sales and costs. The implementation of activity-based costing means that the accounting department has more significant responsibilities in the decision-making, related to the new customer agreements, pricing, and investments. Before the implementation of the new costing method, accounting´s role in these issues was, at best, supporting, but now it is an active member in the decision-making process.
The accounting provides written and unwritten rules that the members of an organisation use to legitimate their actions. This means reviewing their alternatives in the decision-making process. The budgeting, including sales and cost targets, is a good example of a dimension of legitimation. The new costing systems sharpens these internal rules.
The implementation of the activity-based costing links the accounting department closer to the decision-making. Before the implementation of the new system, the role of accounting department in the case company was mainly supportive. After the implementation, the accounting department is an active member, which provides and analyses reliable cost data for issues like pricing, new customer agreements, investment and constant profitability analysis. This is because the activity-based costing´s method also includes non-numeral analyses. In addition, the quality of cost calculations increased, and the assumptions behind the analyses became more transparent. In this case, the implementation of activity-based costing clarified the roles of the managers and integrated the accounting department to an active part of the decision-making process.
The future research could investigate how the role of the accounting is affected by the implementation of the activity-based costing with greater time period. The implementation process takes its time, and the new procedures and techniques cannot be fully utilised imminently. For the case company, this was just the basis for the new costing system, and only the time will tell the gained benefits in the long-term.
Structuration theory and its elements can be used as a theoretical lens to investigate the organisational change. Accounting can be seen as a social system that has also artefacts (formal systems, i.e. the activity-based costing method). This study investigated how a change in one artefact affected the accounting as a social system.
The activity-based costing method provided numeral information of costs per each warehouse. This information was then compared to the income per warehouse to analyse the profitability per each individual warehouse and customer agreement. This analysis is a very useful tool for the pricing decisions, and also for the future repairment investment decision, since it generates mutual understanding about the profitability for the managers of the case company. The outcome of the implementation of activity-based costing was a prioritisation of the warehouses, meaning that the most profitable warehouses are ranked highest when deciding about the repairment investments.
According to structuration theory, the three dimensions of a structure are signification, domination and legitimation. This study finds accounting as a structure that has elements from all the three dimensions. Structuration theory provides a framework that can be used to describe the elements of accounting. As Englund et al. (2011, p. 505) argue, accounting acts at the same time as an interpretive structure, consists of norms that the members of the organisation follow, and is a facilitator for exercising power.
The activity-based costing method was used to generate a profitability analysis of the case company´s warehouses. This information is used to prioritise the importance of each warehouse and customer agreement. The prioritisation is important, because the machinery and equipment of the case company requires repairments. However, all the necessary repairments cannot be done at the same time, since there are financial limitations. The case company is handling an issue where they must decide the sequence of repairment investments.
The implementation of activity-based costing is a drastic change for the whole organisation. It emphasises the role of accounting´s data in the organisation. It means that the case company now has calculations that can be trusted. This information becomes vital when prioritising the investment needs, calculating the profitability of the new customer agreements and making the pricing decisions.
The change of the costing system emphasises the importance of accounting´s communicative role. The findings from the cost analysis must be communicated to the whole organisation, since they provide useful information for many kinds of issues. In the case company these issues are, for example, new customer agreements, investment decisions, pricing and profitability analysis. The implementation of activity-based costing establishes mutual understanding about the strategically important areas of business—in this case, mainly the warehouses. The calculations show what warehouses and customer agreements are profitable and suitable for a profitable future. This information must be recognised in the decision-making.
Related to the domination, money has always had power. The more precise information links the accounting closer to the governance of company. The accounting creates room to exercise power with financial realities and different kinds of rules (for example case company´s purchasing guideline) that affect the behaviour of members of the organisation. The accounting department also has the power to affect the decisions of discussed issues by providing targets for the sales and costs. The implementation of activity-based costing means that the accounting department has more significant responsibilities in the decision-making, related to the new customer agreements, pricing, and investments. Before the implementation of the new costing method, accounting´s role in these issues was, at best, supporting, but now it is an active member in the decision-making process.
The accounting provides written and unwritten rules that the members of an organisation use to legitimate their actions. This means reviewing their alternatives in the decision-making process. The budgeting, including sales and cost targets, is a good example of a dimension of legitimation. The new costing systems sharpens these internal rules.
The implementation of the activity-based costing links the accounting department closer to the decision-making. Before the implementation of the new system, the role of accounting department in the case company was mainly supportive. After the implementation, the accounting department is an active member, which provides and analyses reliable cost data for issues like pricing, new customer agreements, investment and constant profitability analysis. This is because the activity-based costing´s method also includes non-numeral analyses. In addition, the quality of cost calculations increased, and the assumptions behind the analyses became more transparent. In this case, the implementation of activity-based costing clarified the roles of the managers and integrated the accounting department to an active part of the decision-making process.
The future research could investigate how the role of the accounting is affected by the implementation of the activity-based costing with greater time period. The implementation process takes its time, and the new procedures and techniques cannot be fully utilised imminently. For the case company, this was just the basis for the new costing system, and only the time will tell the gained benefits in the long-term.