ABCcc - The Association Between Activity-Based Costing And...

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The Association Between Activity-Based Costing And Improvement In Financial Performance Douglass Cagwin Assistant Professor of Accounting School of Business University of Texas at Brownsville Brownsville, Texas 78520 (956) 983-7300 Email: [email protected] And Marinus J. Bouwman Ralph L. McQueen Associate Professor of Accounting Sam M. Walton College of Business Administration University of Arkansas Fayetteville, Arkansas 72701 (501) 575-6117 Email: [email protected] April 26, 2000 Acknowledgements: The authors wish to thank Karen Pincus, Bill Glezen, Lisa Austen, Tanya Lee, Johnny Deng, Tommy Carnes, and participants at the Accounting Colloquium at the University of Arkansas for their many helpful comments and critiques on earlier drafts of this paper.
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The Association Between Activity-Based Costing And Improvement In Financial Performance ABSTRACT This study investigates the improvement in financial performance that is associated with the use of Activity-Based Costing (ABC). Internal auditors furnish information regarding company financial performance, extent of ABC usage, and enabling conditions that have been identified in the literature as affecting ABC efficacy. Confirmatory factor analysis and structural equation modeling are used to investigate if, and under what conditions the use of ABC is associated with improved financial performance. Results show that there indeed is a positive association between ABC and improvement in ROI when ABC is used concurrently with other strategic initiatives, when implemented in complex and diverse firms, when used in environments where costs are relatively important, and when there are limited numbers of intra-company transactions. In addition, measures of success of ABC used in prior research appear to be predictors of improvement in financial performance. Key Words: Activity-Based Costing, new business initiatives, ABC success, structural equation models. Data Availability: Contact the first author.
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The Association Between Activity-Based Costing And Improvement In Financial Performance INTRODUCTION Activity-Based Costing i (ABC) has been promoted and adopted as a basis for making strategic decisions and for improving profit performance (Kaplan and Norton 1992; Turney 1992; Cooper and Kaplan 1991b). In addition, as Kaplan (1990) predicted, ABC information is now also widely used to assess continuous improvement and to monitor process performance. Although ABC has found rapid and wide acceptance, there is significant diversity of opinions, however, regarding the efficacy of ABC (McGowan and Klammer 1997). Despite managers’ insistence that management accounting systems pass the cost-benefit test (Foster and Young 1997), there still is no significant body of empirical evidence to validate the alleged benefits of ABC (Shim and Stagliano 1997; McGowan and Klammer 1997). Empirical research is needed to document the (financial) consequences of ABC implementation (McGowan 1998).
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