Activity-Based Costing

Technovation 23 (2003) 131–138 www.elsevier.com/locate/technovation

Activity-based costing/management and its implications for operations management

M. Gupta *, K. Galloway

College of Business and Public Administration, University of Louisville, Louisville, KY 40292, USA

Abstract Activity-Based Costing/Management (ABC/M) is an Information System developed in the 1980s to overcome some of the limitations of traditional cost accounting and to enhance its usefulness to strategic decision-making. In this paper, we show how an ABC/M system can serve as a useful information system to support effective operations decision-making processes. We propose a conceptual framework, Operations Hexagon, to discuss the managerial implications of an ABC/M system for various operations management decisions related to product planning and design, quality management and control, inventory management, capacity management and work force management. By viewing an ABC/M system as an enabler to improve the operations decision-making, we demonstrate that these systems enable an operations manager to enhance the quality of the decision-making process.  2001 Elsevier Science Ltd. All rights reserved.

Keywords: Activity-based costing; Activity-based management; Operations management; Operations decision-making framework

1. Introduction The present era of global competition, evolving technologies and information systems is leading companies toward a renewed commitment to excellence in manufacturing. Increasing attention to the introduction of new products, the quality of products and processes, the level of inventories, and the improvement of workforce policies have helped companies to become world-class. Accurate cost information is critical for every aspect of a business, from its pricing policies to its product designs and performance reviews. However, most companies are still using the same traditional cost accounting systems that were developed decades ago (Kaplan and Cooper,...