Developing and Testing a Model of Successful Adoption of Activity-Based Costing

ii This study aims to develop and test a model for successful adoption of activity-based costing (ABC). The model has been constructed to explore the relationship between organisational and technological factors and management evaluation of overall ABC success and suggest a pathway. Another objective of this study is the examination of the relationship between ABC and business unit performance. The study also aims to investigate why some business units have not adopted ABC and why some business units have discontinued their use of ABC. Data for the study were collected from both adopters and non-adopters of ABC through the survey method. The data are pertinent to all types of businesses. The business unit is the unit of analysis. Results reveal that the adoption rate of ABC is lower than that reported in literature. Testing the hypothesised model revealed that the following factors significantly influence management evaluation of ABC success: training, differentiation strategy, non-accounting ownership, ABC-based actions, activity efficiency and process cost improvement. The relationship between ABC use and operational performance is influenced by the role of ABC-based actions. The ABC system is perceived as having a high level of overall success by managers; however, it demonstrates only moderate success in terms of financial benefits and customer satisfaction. This suggests that there are other factors that also contribute to the assessment of overall success. The perceived success of ABC seems to be associated with time since introduction of ABC, but not with business size. Reasons for not adopting or discontinuing ABC appear similar to those reported in literature