To show how organizational
interdependence changes the assumptions underlying traditional responsibility
accounting and how an activity based accounting system more closely matches the
demands of interdependence.
Activity-based Costing
ABC – a tool for analyzing cost flows and interdependence
in complex manufacturing settings.
Costs reported and activities highlighted by an ABC system
affect employee & organizational behavior.
Interdependence and the Organization
Interdependence is the integration of activities across
functional and departmental lines.
TIME
Throughput Time
Continuous Improvement
Measuring move, queue,
setup, inspect and process times
Trending historical actuals
STRUCTURE
Horizontal / Vertical Controls
Cell Configurations
Group incentives
Standardizations-product families
PROCESS
Remove buffers
Explicitly linking activities
"Stop & fix" replaces "run & sort "
Concurrent design, team orientation
CONTROL
Activity rather than individual focus
Activity based responsibility accounting
Interdependence and Responsibility Accounting/ Redefining
Control
Traditional responsibility accounting uses budgets and
variances to hold individuals responsible for those costs that they control .
Activity-based accounting redefines accountability from costs
to activities.
Activity-based
Responsibility Accounting
Traditional
Responsibility Accounting
Basic Assumption
Interdependence
Independence
Focus
Organization
Individuals
Objective
Analysis
Cost control
Control Emphasis
Activities
Costs
Control Point
Process
Outcomes
Variance Usage
Improve process
Balance ledger/accountability
Standards
Historical/trended
Engineered/static
Goals Encouraged
Continuous improvement
Meet standards
Control Characteristics
Multi-dimensional
Ambiguous
Strategic
Financial & operational
One-dimensional
One-to-one map
Budget-based
Financial
Adopting a Database Approach
An Activity-based accounting system:
Identifies interrelated activities à
then attaches costs à then charges back to
process/product.
A database of activity costs is developed and maintained
Looking Forward
ABC could reshape management control processes by creating a
new form of responsibility accounting based on activities instead of on
individual accountability.
Responsibility accounting needs to be revised to include
team-based performance.
Managers who employ the new forms of costing and control
offered by ABC, in addition to strategic planning, integrated performance and
rapid response to environmental changes, will have a good chance for survival.
