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ACCO1095: Management Accounting
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Name- Mohammed Bhuiyan
“ABC is still relevant for companies in all geographical locations – critically discuss” The theory of activity based costing (ABC) was developed in 1970’s to understand the product and customer cost and profitability based on the production or performing process in the manufacturing center of United State (Glad & Becker, 1996). Later, it got the reorganization after getting introduced by Kaplan and Copper in 1980’s (Glad & Becker, 1996) to the whole world. ABC assists companies in strategic decisions like pricing, budgeting and outsourcing. In this competitive world, when companies are trying to utilize more efficient way of costing, ABC was argued to be a solution for them (Jonson & Kaplan, 1987 as cited in Benjamin et al, 2009). Although ABC has lost its popularity since 1990, Stratton et al (2009) stated that the usage rate is still between 50% and 70%. Still, ABC is a dependable way of costing for companies from Europe, Asia and other regions people. This essay will critically discuss the usage of ABC in a geographical context to show their relevance in the modern time. The examples of several countries are also included to support the argument while discussing them in the essay. The reason ABC was required relates to the business environment changing rapidly from the 1940’s (Pike et al, 2010). The changes affected business because there was a need to increase efficiency to compete in a growing market and this had to be achieved while understanding the true nature of cost of the product; achieving satisfaction of the consumers. This change in the economy continued into the 80s where it was found that the old management accounting systems did not meet the needs of the companies using them; thus ABC was introduced (Benjamin et al, 2009). Moreover, the urge of improving accounting systems like ABC and others stated from the British development in the 1890’s for the rapid growth in production due to their industrial revolution (Glad & Becker, 1996). While competing with British organizations, every other organization tried to use the best way of costing to survive in that complex environment. Liua and Paub’s (2011) report provides further evidence that the business changes in the economic environments are still important to consider. Liua and Paub (2011) also added that economically developed countries are already using advance costing system like ABC in USA and target costing/ Kaizen in Japan to gain control over the consumers by giving quality full product and service in a competitive price.
ABC has not only gained acceptance in the USA, but also in Pacific Rim and European-based companies like UK and New Zealand (Gupta & Galloway, 2003). Hence, the developing countries like China and India are already following ABC costing system with the hel p of their management. A case Study of Chinese manufacturing company name ‘Xu Ji Electric Co.’ is one example of a company within this country adopting ABC. ‘Xu Ji Electric Co.’ implemented ABC with the help of their management team and the members of Shanghai University of Finance and Economics due to the change in their market (Liu & Pan, 2010)....