Purpose of the article: To describe a two-stage structured approach to implementing activity-based cost systems.

First stage: Decision-making. Involves design choices that should be made before starting the implementation. These choices will define the characteristics of the system and will depend on its primary objective.

• Should the system be integrated with the existing system or should it be a stand-alone system?
             Factors to consider: a) time, b) cost (software development, interfaces, how
           frequently is info. needed), c) corporate approval, d) approval from external
           auditors e) expertise.
  
• Should a formal design be approved before implementation?

Factors to consider: a) time involved in design-approval process, b) dealing with design changes during data-gathering and analysis phases of project.

• Who should take ownership of the final system?

Factors to consider: a) only finance people involved or a multidisciplinary team.

• How precise should the system be?

Factors to consider: a) use of information generated by system.

• Should the system report historical or future costs?

Factors to consider: a) use of information generated by system.

• Should the initial design be complex or simple?

Factors to consider: a) risks involved in building a) complex system, b) objective of the system

Second stage: Implementation. Objectives of this stage: a) ensure implementation team has adequate knowledge of ABC to allow the team to design an appropriate system, b) ensure management learns the concepts and benefits of ABC so they will accept and use the info. generated by system, c) ensure that the design and data gathering steps of project will be performed efficiently.

The implementation plan used involved 7 steps:

• Seminar on ABC for the management team.
  
• Design seminar for the implementation team-computer-based training exercises, which dealt with how to identify activity centers and methods to assign costs, as well as how to collect data.
  
• Design and data gathering-analyze overhead to identify the activities driving it.

• a) identify major activities
• b) determine the cost of those activities
• c) identify what drives those activities
• d) determine quantities of each cost driver associated with each product
• e) compute activity-based product costs

Overhead was broken into 6 major components: a) salaried wages, b) indirect hourly wages, c) maintenance & repair, d) depreciation and taxes, e) fringe benefits, and f) other resources.

• Progress meetings-informational meetings with management about the progress made throughout the design and data-gathering steps. Plant managers played an important role by providing feedback about the info. obtained, helping to identify possible errors made by the design team, and providing solutions to problems encountered by the team.
  
• Executive seminar for the management team-more detailed info. about ABC, the final design of the system was presented, management’s concerns about discrepancy in product costs between 2 systems was discussed, dissemination of info. generated by new system was discussed.
  
• Results meeting-select group analyzed activity-based info. generated by system to fine-tune system results.
  
• Interpretation meetings-how to interpret the activity-based product costs and the actions that should be taken based on that info. Engineers gave feedback about how the costs were assigned to products. Also, discussions about finding ways to improve the production process to reduce costs took place.

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