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Article Released Tue-14th-June-2005 14:00 GMT
Contact: Luis F. Razon Institution: De La Salle University
 Activity Based Costing (ABC) Techniques - implementation, benefits and problems

In the Philippines, only a handful of companies have adopted ABC in their strategy formulations and little is known about it. This research focuses on the implementation of ABC, the benefits derived and the problems encountered in using the system.

An Exploratory Research on the Implementation of Activity Based Costing (ABC) Techniques in Selected Firms in the Philippines

Ms. Marivic Manalo
De La Salle University

Abstract

Activity-Based Costing (ABC) is a management accounting tool used to guide in the strategy formulations of a company. In the Philippines, only a handful of companies have adopted ABC as a tool in their strategy formulations. Most of the companies employ ABC in their pilot implementation.

Relative to other advanced countries like the United States, little is known about the implementation of activity-based costing in the Philippines. This research focuses on the implementation of ABC in various companies in the Philippines. The study is limited only on how ABC was implemented, the benefits derived and the problems encountered in using the system. The results of the interview conducted revealed that 59% of the companies included in the sample use ABC as a parallel system with another costing system while the remaining 41% use ABC as the main costing system. Most of the companies included in the study implemented ABC in a gradual basis, i.e., piloting it first with a department e.g., production, then weighing first the benefits that may be derived from the adoption of the new system versus the cost incurred in the implementation of such changes in the costing technique.

ABC techniques helped companies in determining accurate product or service cost. ABC provided information regarding processes that should be improved and the products or services that are contributing the most to company's profitability. ABC also helped in knowing what are the factors that contribute most to cost, which in turn assisted management in choosing best alternative in reducing overall costs incurred by the company. ABC can be the best tool to be utilized in implementing environmental accounting at the firm level.

It is undeniably correct to say that many companies are finding difficulties to fully implement ABC because of the demands of the clients, customers or even suppliers with whom business is transacted. They also complain about employees' resistance to changes that are required in the adoption of ABC. With these restrictions, companies using ABC could not fully implement ABC in the whole operations.

In an ever-changing global competitive world of business, it is imperative that companies should discover and implement new techniques in order to be more productive, efficient and profitable, enabling to have a competitive advantage over other companies. But like all other innovations, careful analysis must be taken before shifting to new methods and techniques. It is important that companies contemplating in effecting the much-needed change in their costing procedures make a thorough and careful analysis of both costing systems. The benefits in shifting from one technique over the other must be greater than the costs that would be incurred in the long run.

In conclusion, adopting ABC technique provides improvement in the overall operation of the company for a certain extent only. As with any new concept, there are bound to be growing pains and a learning curve. Most of the companies included in this research realized that the new system should be given a time for acceptance and understanding. Results as they have experienced do not happen overnight. Change is not something that people have the ability to readily accept. Companies are learning that they must be willing to allow their objectives to grow as their understanding of the possibilities brought about by the use of ABC techniques to grow, and make modifications where needed.

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Keywords associated to this article: Activity Based Costing
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