Cooper and Kaplan

Page 1 of 24

Cooper and Kaplan

By | August 2012
Page 1 of 24
Activity-Based Systems: Measuring the Costs of Resource Usage Robin Cooper and Robert S. Kaplan
Robin Cooper is a Professor at the Claremont Graduate School and Robert S. Kaplan is a Professor at the Harvard Business School.

This paper describes the conceptual basis for the design and use of newly emerging activity-based cost (ABC) systems. TVaditional cost systems use volume-driven allocation bases, such as direct labor dollars, machine hours, and sales dollars, to assign organizational expenses to individual products and customers. But many ofthe resource demands by individual products and customers are not proportional to the volume of units produced or sold.^ Thus, conventional systems do not measure accurately the costs of resources used to design and produce products and to sell and deliver them to customers. Companies, including those with excellent traditional cost systems,^ have developed activity-based cost systems so that they can directly link the costs of performing organizational activities to the products and customers for which these activities are performed.

ments.^ The following equation, defined for each major activity performed by the organization's resources, formalizes this relationship: Activity Availability = Activity Usage + Unused Capacity A simple example illustrates the difference between the cost of resovirces supplied and the cost of resources used to perform activities.

I. ABC SYSTEMS AS RESOURCE USAGE MODELS
Activity-based cost systems estimate the cost of resources used in organizational processes to produce outputs.^ Many people have attempted to interpret activity-based costs using their more familiar fixed versus variable cost framework, an interpretation inconsistent with an ABC system's measurements of resource usage costs. The conventional fixed versus variable cost cleissification arises from an attempt to classify the likely change in spending or supply of a resoxirce. The measiirement of unused capacity...