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REPLACEMENT OR STAND ALONE SYSTEM* Summary by James R. Martin |
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STAND ALONE ABC SYSTEMS - ADVANTAGES & DISADVANTAGES |
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ADVANTAGES |
DISADVANTAGES |
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1. Time - Can implement faster than a replacement system. 2. Cost - Is much less expensive to develop, implement and operate since the information is needed less often for management strategic decisions, e.g., once per year or when the process is changed. 3. Politics - Does not require corporate approval. 4. Audit - Does not require approval from external auditors. 5. Type of information - Can use subjective information obtained from interviews that might be difficult to verify. 6. GAAP - External reporting does not require the detail and complexity of ABC costing. 7. Expertise - Few have the knowledge and experience to develop a single system. |
1. Conflicts - Two sets of product costs will cause confusion and arguments. 2. Staff redundancy - Two systems require two groups to maintain. 3. Data redundancy - Two systems creates duplication of data and effort. A single data base system would eliminate the redundancy. 4. Credit - The glory is in the development and implementation, not the maintenance. Developers tend to lose interest after a system is developed. 5. GAAP - Traditional system product cost
distortions may produce inaccurate information for external
users. 6. Expertise - The knowledge and experience is available to develop a single data base system to satisfy all the audiences for accounting information. 7. ABC Analysis - Integrating ABC with the general ledger would facilitate ABC analysis at the activity level on a monthly basis. (See Example). |
* Stand alone as a separate decision support system rather than integrated into the general ledger.
Some Survey Results
The following graphic illustration provides some 2003 survey results (See the Hughes & Gjerde summary). The data in this survey indicate that most of the firms that use ABC use it as a separate stand alone decision support system, not a system integrated with the general ledger.
| ABC Main Page | ABM Main Page |
