Can ABC bring mixed results?

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Can ABC bring mixed results?
Landry, Steven P[pic]; Wood, Larry M[pic]; Lindquist, Tim M[pic]. Strategic Finance[pic]78. 9[pic] (Mar 1997): 28-33. Turn on hit highlighting for speaking browsers
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Part of Hewlett-Packard's success has been attributed to its decentralized organizational structure, which provides many advantages that often produce diverse solutions to market-focused problems. However, this diversity of solutions also can bring mixed results when activity-based costing (ABC) is implemented. HP's Colorado Springs Division experienced a less than totally effective ABC implementation. Over the period from August 1988 to August 1989, the Colorado Springs Division designed an ABC system with the goal of providing for better product costing and inventory valuation. It began implementation in November 1989 but halted the process in the summer of 1992. Since then, the Division has made no future attempts to re-implement a more expansive ABC approach. The problems included: 1. too many drivers, 2. no proper administration, 3. no follow-through, and 4. too much emphasis on consensus. Full text

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Hewlett-Packard (HP) is considered one of the best managed and most innovative companies in the world. It continually has shown an ability to adapt to global competitive challenges through technical innovation and continuous reassessment of its management and control mechanisms. Part of HP's success has been attributed to its decentralized organizational structure, which provides many advantages that often produce diverse solutions to market-focused problems. But this diversity of solutions also can bring mixed results when activity-based costing (ABC) is implemented. Most Hewlett-Packard case studies concerning activity-based costing have described the merits of ABC. For example, MANAGEMENT ACCOUNTING(R) carried the story of HP's Boise Division in September 1993.1 Another division, however, experienced a less than totally effective ABC implementation. Over the period August 1988 to August 1989, the Colorado Springs Division designed an ABC system with the goal of providing for better product costing and inventory valuation. It began implementation in November 1989 but halted the process in the summer of 1992. Since then, the Division has made no further attempts to re-implement a more expansive ABC approach. Future plans are to keep what it has at present. What lessons did the Division learn from its experience, and how can other companies apply them to their own ABC implementations? Here's the story. NOT YOUR TYPICAL ABC EXECUTION Hewlett-Packard's Colorado Springs Division, one of the divisions within HP's Testing Measurement Group, constitutes, by HP standards, a relatively large division with a high-mix, low-volume product line. It stands in direct contrast to the low-mix, high-volume nature of HP's Boise Division. This difference, in conjunction with HP's decentralized corporate management style, has led to differing ABC implementation results between the two divisions. The Colorado Springs Division produces and supports a product line that includes test and measurement equipment (such as oscilloscopes and logic analyzers) marketed primarily to design engineers in the communications and computer industries. One of the Division's objectives in implementing ABC was to gain a better understanding of its production and support processes so it could assign costs to its products on a cause-and-effect basis. The actual decision to implement ABC was driven by the Testing Measurement Group management in hopes that it would give the Division better cost information on which to base product pricing decisions. After gaining a full understanding of its processes, the Colorado Springs Division attempted to identify cost drivers. Within the context of ABC, cost drivers are defined as any factor in a process that...
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