This paper presents solutions to the company, which wants to build an Activity-Based Costing system (ABC system) to achieve accurate product cost information and process improvement continuously. It present a theoretical aspect of the ABC system and compares it with the legacy ABC systems. This paper selects three legacy ABC systems - SAP R/3 Enterprise Resource Planning System, a commercial ABC package-based system, and a self-developed ABC system.
This thesis shows that all three ABC systems are basically designed to focus on the accuracy of product/service cost information. For instance, two companies illustrated in the paper show an outstanding-performance in applying activity-based cost information to their strategic decision-making. However, they do not stand out from the process point of view.
In the theory of ABC system, the resources consumed through activities must be allocated by the resource drivers according to each activity. However, the above legacy ABC systems do not use resource drivers. They use their own standards that are in each department.
There are two ways of allocation in activity costing. One is to allocate activity costs to cost centers or activities, and the other is to allocate them to the cost objects such as product, customers, and distribution channels. Theoretically, activity costs are allocated using cost drivers. However, in practice, some systems use cost drivers while others use their own way in allocating activity costs to cost objects.
In the process point of view of ABC system, it is important to obtain accurate activity cost information. However, it is also important to develop an appropriate performance measure that can get activity managers interest in the activity and process innovation.
