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ANALYSIS AND IMPLEMENTATION OF ACTIVITY BASED COSTING: A
SOLUTION FOR MANUFACTURING FIRMS TO GAIN PROFITABILITY
Research Project I
Abdul Baseer112003
In partial fulfillment of the requirement for the degree of Bachelors of Business Administration
Under the supervision ofDr. Riaz Hussain
Presented to
Hamdard Institute of Management Sciences
HAMDARD UNIVERSITY
May 2015
ANALYSIS AND IMPLEMENTATION OF ACTIVITY BASED COSTING: A SOLUTION FOR MANUFACTURING FIRMS TO GAIN PROFITABILITY
Research Project I
Abdul Baseer112003
In partial fulfillment of the requirement for the degree of Bachelors of Business Administration
Under the supervision ofDr. Riaz Hussain
Presented to
Hamdard Institute of Management Sciences
HAMDARD UNIVERSITY
May 2015
2
ABSTRACT
This examination analyzes the need to create Activity Based Costing Systems (ABC) in
bookkeeping practices among manufacturing firms in Pakistan. Contrast between mean
was utilized to measurably test speculations one, two and three. Taking into account
these, the study found besides everything else that there is amazing low selection of ABC
among manufacturing firms in Pakistan. In addition, ABC enhances proficiency, lessens
operational expenses, and legitimately cost items better than customary Activity Based
Costing frameworks. The effects of these on the study is conventional Activity Based
Costing frameworks utilized decades back when the manufacturing segment was work
concentrated and less computerized may no more give the pleased result. This ought to
offer approach to Activity Based Costing framework, a branch of the new manufacturing
advancement with abilities to cost item legitimately, perceiving causality and exchanges
included. Ensuing upon these, the study suggests that with desires of the nation to walk
towards a dream of accomplishing the tallness in the economies of the world.
3
CERTIFICATE
This is to certified that research work contained in this thesis entitled, “Analysis And
Implementation Of Activity Based Costing: A Solution For Manufacturing Firms
To Gain Profitability” has been carried out and completed by Name of Student, under
my direct supervision and guidance at the Hamdard Institute of Management Sciences,
Hamdard University, Karachi.
_________________________Dr. Riaz HussainAssistant ProfessorDated:
4
DEDICATED TO
This is for you, my Mom and Dad. Thanks for support and well wishes.
.
5
ACKNOWLEDGMENT
I place on time, a gratitude to my Research Instructor Dr. Riaz Hussain, my friends, and
others who have helped me out in the completion of this research project.
1 Contents
6
ABSTRACT..................................................................................................................................iii
CERTIFICATE............................................................................................................................iv
DEDICATED TO...........................................................................................................................v
ACKNOWLEDGMENT..............................................................................................................vi
LIST OF TABLES........................................................................................................................ix
INTRODUCTION.........................................................................................................................1
1.1 Background of the Study.......................................................................................2
1.2 Statement of Problem............................................................................................3
1.3 Justification...........................................................................................................3
1.4 Purpose of the Study.............................................................................................4
1.4.1 General Purpose.............................................................................................4
1.4.2 Specific Purpose............................................................................................4
1.5 Basic Assumptions................................................................................................4
1.6 Definition of Key Terms.......................................................................................4
1.7 Scope.....................................................................................................................5
1.8 Limitations............................................................................................................5
1.9 Hypotheses............................................................................................................5
LITERATURE REVIEW.............................................................................................................7
RESEARCH METHODOLOGY...............................................................................................11
3.1 Design Strategies.................................................................................................12
3.2 Population...........................................................................................................12
3.3 Sample Design....................................................................................................13
3.4 Sample.................................................................................................................13
3.5 Research Tools and Techniques..........................................................................13
3.6 Instrument Design...............................................................................................13
3.7 Validity................................................................................................................13
3.8 Reliability............................................................................................................14
DATA ANALYSIS AND DISCUSSION....................................................................................15
SUMMARY, FINDINGS, CONCLUSION AND RECOMMENDATIONS............20
5.1 Summary.............................................................................................................21
5.2 Findings...............................................................................................................22
7
5.3 Conclusion..........................................................................................................22
5.4 Recommendations...............................................................................................23
6 Bibliography......................................................................................................................24
APPENDIX-A..............................................................................................................................26
8
LIST OF TABLES
Table 4-1…………………………………………………………………16
Table 4-2…………………………………………………………………18
Table 4-3…………………………………………………………………18
Table 4-4…………………………………………………………………19
9
CHAPTER-ONE
INTRODUCTION
1.1 Background of the Study
In today's focused surroundings, each association experiences different difficulties that
force them to adjust adequately with a specific end goal to persist intensity. Particularly,
manufacturing firms must face more situations that are worst. For example, structure of
item cost had changed significantly with generation overhead cost becoming in relative
with size (Askarany & Yazdalifar, 2007). Accordingly, manufacturing firm likewise
executes a few methods for practical focal point and firm achievement. Activity Based
Costing execution is one of contemporary administration bookkeeping strategies that give
cost data helpfulness to create key choice making, practical preference critical to working
all the more effectively in fiercely focused environment (D & Askarany, 2007). Activity
Based Costing has yielded most noteworthy profits valuable for item choice, for example,
evaluating, erasing, worth including, updating, and outsourcing; supportive for item
productivity investigation, for example, making operational upgrades, arranging planning
and performing assessment (Baird., 2007) .
Activity Based Costing alludes to measure and monetary reports and other data identified
with the association's obtaining or utilization of assets that give cost data, to be specific
item costing for both administration and budgetary bookkeeping (Bescos, Cauvin, &
Gosselin, 2002). Item costing contains the expenses acquired in the production line to
make a unit of item that is the methodology of amassing, characterizing, allocating
immediate materials, immediate work, and processing plant overhead expenses to item
(Bjornenak T, 2002). Activity Based costing achievement is moderately late and
paramount advancement in the general region of cost accounting. In bookkeeping
writing, giving a definition, in any case, was hazardous as the writing is ambiguous about
what constitutes cost accounting achievement (Clark P, 2002). Late observational studies
have concentrated on Activity Based Costing accomplishment as measured in different
ways, and have considered the essential goal of Activity Based Costing usage. Therefore,
this examination is an endeavor to give the definition focused around the essential goal of
Activity Based Costing.
For this examination concentrates on the primary goal in three ways including, exact
2
count item cost, compelling stock valuation, and productive planning of money related
report (Hopper T, 1994). Besides, Activity Based Costing writing is an absence of exact
confirmation for examining the relationship in the middle of precursors and results of
Activity Based Costing usage (Hughes S.B, 2003). In this manner, the relationship in the
middle of precursors and outcomes of fruitful cost accounting usage is important for
scholarly analyses to research and confirm.
The issue of picking the holding cost in stock models. Customarily, the expense of
holding stock is expected to increment directly with a rate that is equivalent to a rate of
the item esteem. This since the capital expense is accepted to make up the fundamental
piece of the expense. Nonetheless, late research demonstrates that this is not so much the
situation. A strategy for deciding a suitable holding expense for every unit and time unit,
which can be utilized as a part of existing recipes is inferred. The system is focused
around the thoughts behind Activity Based Costing.
1.2 Statement of Problem
The key examination inquiry of this exploration is the means by which Activity Based
Costing implementation has an effect on firm achievement. In addition, the particular
examination inquiries are as per the following. How does Activity Based costing
execution have an impact on?
• Choice making viability
• Suitable expense plan setting
• Monetary report convenience
• Corporate competency
• Firm achievement
1.3 Justification
The results of this report Analysis and implementation of Activity-Based Costing: A
3
solution for manufacturing firms to achieve profitability will help the firms to know the
fruitfulness of ABC in the operations of the daily routine. Therefore, they can adopt it
and have a competitive edge in the marketplace.
1.4 Purpose of the Study
The fundamental destinations of this exploration are as per the following:
• To look at the parts of Activity based cost accounting execution on firm
achievement.
• To inspect the impact of Activity based cost accounting usage on choice making
viability, proper expense plan setting, monetary report timely, and corporate competency.
1.4.1 General Purpose
The purpose of this study to help the manufacturing firms of Pakistan to determine their
profits and losses on each of their activity to track the operations so they can have the
most of the opportunity.
1.4.2 Specific Purpose
The study specifically focuses on the manufacturing of Karachi industrial area to make
them able of finding right direction of their operations decision making.
1.5 Basic Assumptions
The firms of Karachi will be studied is the report therefore it is assumed that all other
firms operate same as the firms of Karachi.
1.6 Definition of Key Terms
Stock:
It represents the residual assets of the company that would be due to stockholders after
discharge of all senior claims such as secured and unsecured debt.
4
Budgetary Reports:
An estimation of the revenue and expenses over a specified future period. A budget can
be made for a person, family, group of people, business, government, country,
multinational organization or just about anything else that makes and spends money.
Item Cost:
It represents the specific value that represents unit price purchased. This value is used as
a key factor in determining profitability.
1.7 Scope
The results of this study will help the manufacturing firms to find out way to make sound
decisions about which batch of production, customer or other aspects of the productions
are profitable of them and which one they should go for, the results of this study will not
be specified to Karachi’s manufacturing firms but also others in the Pakistan.
1.8 Limitations
One of the major issues lacks of time to conduct the research. Second major limitation is
the resources availability.
1.9 Hypotheses
H0: The higher activity-based costing (ABC) usage exact figuring item cost can be
determined.
H1: The higher activity-based costing (ABC) usage exact figuring item cost cannot be
determined.
H0: The higher activity-based costing (ABC) usage powerful stock valuation.
H1: The higher activity-based costing (ABC) usage no powerful stock valuation.
H0: The higher activity-based costing (ABC) usage productive arrangement of budgetary
report.
5
H1: The higher activity-based costing (ABC) usage no productive arrangement of
budgetary report.
6
CHAPTER-TWO
LITERATURE REVIEW
7
The Necessity of Activity Based Costing:
Conventionally cost accounting, which primarily utilizes one single expense driver, for
example, direct work or yield volume to distribute the overhead expenses, efficiently
misshapes item costs in present day assembling and administration situations in which
catch expenses are a huge part of item expenses. Wrong item cost data can prompt poor
choices (Wang P, Du F, Lei D, & Lin T W, 2010) .
Why is conventional accounting losing quality management? ABC is the answer for the
customary method for expense reporting. It builds contention in the way that the today's
record frameworks encourage authoritative accounting and reporting essential yet not
satisfactory for an interior utilization or for a procedure based choice making. The article
additionally uncovers the defects in the standard costing framework as the framework is
deficient and naturally miscalculates direct or overhead expenses and structurally
inadequate to permit leaders to quantify and separate costs. To outline thinking, gave side
by side illustrations of how expenses are caught, summarized and reported by means of
the general record and ABC database position. The audit of why is Conventional
Accounting Losing Quality Management? Demonstrates that conventional accounting
frameworks give reports that make supervisors and quality experts cheerful or awful; then
again, the ABC technique instruct and makes them more intelligent in understanding the
genuine cost of methods, items, or administrations (Narong & K, 2009).
Conventional cost-based methods were created years prior, when direct labor expenses
were profitable and represented a noteworthy share of production expense. Benchmarks
were created for following and controlling direct labor movement, and indirect expenses
were assigned over units. Those methods were fit for associations that mass delivered a
restricted scope of items and brought about for the most part variable expenses. Then
again, labor now is largely altered and indirect expenses have been an extensive piece of
aggregate cost in many associations. These indirect expenses are acquired to gain assets
expected to give a wide mixture of exercises, each with diverse expense drivers.
8
In spite of the fact that administration can influence the level of spending for these
submitted expenses over the long run, the measure of limit obtained and related spending
is settled in the short run. This can prompt either overcapacity and overspending or
restricted limit and bottlenecks. Therefore, more forceful frameworks that give itemized,
precise data about the conduct of these expenses, and that support organizations in
dealing with these conferred assets are required. Conventional accounting tends to give
data which however exact is regularly late, insignificant, and misdirecting. It is
additionally intricate to the uninitiated with its twofold passages, accumulations and
procurements (Gering., 1999). An option administrative rationality and its related
estimation frameworks, specifically, activity based costing (ABC), has been offered to
defeat a portion of the disappointments of standard costing for enhancing administrative
choice making. ABC has been recognized to give cost data to more exact expense
distribution.
Fruitfulness of Activity-Based Costing:
The costing strategy called Activity-Based Costing (ABC) yields cost data that may be
essentially unique in relation to what is given when the conventional retention cost
system is utilized. Maybe right now is an ideal opportunity for the task administration
calling to consider receiving ABC in assessing undertaking productivity? Also, ABC
investigation empowers supervisors to cut into the business various routes by item or
gathering of comparable items, by individual client or customer gathering, or by
dispersion channel—and issues them a nearby up perspective of whatever cut they are
considering. ABC investigation likewise informs precisely what exercises are connected
with that a piece of the business and how those exercises are connected to the era of
incomes and the utilization of assets. By highlighting those connections, ABC helps
directors see exactly where to take activities that will drive benefits.
Moreover, supervisors can utilize ABC to investigate numerous different parts of their
organization's operations. They can pose as a viable rival the benefits that different
clients, product offerings, brands, or districts create. At that point, they can focus in on
the dynamic of the productive ones. Case in point, a brand investigation could take a
9
gander at all the costs connected with managing a brand, for example, "Smart Cereal",
which incorporates twelve separate bundles and flavors. Chiefs can judge the brand's
productivity by coordinating the incomes earned from all Snappy items against the costs
connected with advancing, adverting, and keeping up the Snappy brand in the
commercial center (Cooper & Kaplan, 1991).
At last, ABC is straightforward. For every procedure the expenses containers are
distinguished, their expense drivers are recognized and the expense every driver is
computed. Expenses are found by tallying the drivers. On the off chance, that it costs $5
to receipt a client and one client creates a hundred receipts then the related expense is
$500. An alternate client may create ten or a thousand receipts and thusly have an
expense structure, which is very distinctive. The fundamental work setting up an ABC
system is distinguishing and figuring the expense pails and expense drivers. This is the
same foundation needed to reengineer a business, including benchmarking (how would
we stand up in comparison?), movement investigation (by what method would we be able
to improve?) In addition, administration level examination (what will the clients pay
for?). In its easiest structure execution, change can be seen as far as time, expense, and
quality. The relationship between execution change and ABC is perceptible. ABC has a
moderate effect on time, a noteworthy effect on quality, and a generous effect on expense
(Gering., 1999).
10
CHAPTER-THREE
RESEARCH METHODOLOGY
11
3.1 Design Strategies
The type of my research is descriptive and causal study.
The objective of descriptive research is to describe things, such as the market potential
for a product or the demographics and attitudes of consumers who buy the product (Philip
Kotler, 2006)
Descriptive Research is defined as research that determines the cause of something and/or
describes the behavior of something. Coming from a market research perspective,
descriptive research can be an important tool in understanding consumer behavior. To
conduct this type of research in regard to a market, one must determine the purpose of the
research, form a question stating what the researcher wants to know and form a
hypothesis as to what the answer might be. Once the purpose, a question and a hypothesis
are put together, they can be used to create a market research study. (Bains, 2010)
Causal Research refers to the investigation into an issue or topic that looks at the effect of
one thing or variable on another. (Philip Kotler, 2006).
Research that involves finding the effect of one thing on another or the effect of one
variable on another, is called Causal Research. To conduct this type of research, one must
hold one variable (the one that is suspected to cause the change in the other variables)
constant so the other variables can be measured. (Bains, 2010)
The study includes the analysis and implementation of Activity-Based Costing that
makes it descriptive study, because the potentials of Activity-Based Costing will be
discovered. The study is also causal; the cause of Activity-Based Costing will be
implementation on the productivity of the firms will be discovered.
3.2 Population
The population of the study is manufacturing firms of Pakistan. The total number of
manufacturing firms in Pakistan is 63. The manufacturing firms that I have taken are all
listed on the Karachi stock exchange market.
12
3.3 Sample Design
The sample is drawn with the help of following equation:
x = Z(c/100)2r(100-r)
n = N x/((N-1)E2 + x)
E = Sqrt[(N - n)x/n(N-1)]
where N is the population size, r is the fraction of responses that you are interested in,
and Z(c/100) is the critical value for the confidence level c.
3.4 Sample
The level of confidence in determining the sample is 80% and the level of significance is
20%. The response distribution is 40% therefore the sample drawn is 9.
3.5 Research Tools and Techniques
The tools used for this research are MS Word, Google search engine.
3.6 Instrument Design
The data for this research will be collected through distribution of questionnaire to the
employees of the manufacturing firms to know what they believe about the Activity-
Based Costing therefore the result can be presented to key personnel of the firms to
implement the Activity-Based Costing. The questionnaire consist of questions with likert
scale for the answer selection.
3.7 Validity
Validity includes the completely exploratory idea and makes whether the outcomes got
meet the majority of the necessities of the investigative examination system.
Inner Validity directs how an exploratory configuration is organized and incorporates the
majority of the ventures of the investigative examination system.
13
Outer Validity is the procedure of looking at the outcomes and addressing whether there
are whatever other conceivable causal connections. (Barrett & Olson, 2002)
3.8 Reliability
The thought behind unwavering quality is that any critical results must be more than a
coincidental discovering and be intrinsically repeatable.
Different specialists must have the capacity to perform precisely the same examination,
under the same conditions and create the same results. This will strengthen the
discoveries and guarantee that the more extensive academic group will acknowledge the
speculation.
Without this replication of statistically critical results, the examination and exploration
have not satisfied the greater part of the necessities of testability. (Barrett & Olson, 2002)
14
CHAPTER-FOUR
DATA ANALYSIS AND DISCUSSION
15
According to the analysis the people of have attempted the questionnaire had answered
the questions as follows:
For question no ten the people are agreeing 3 of them are strongly agree and 5 of them
are agreeing to the answer which interprets that the ABC is worthy to be adopted. On
question no one the 3 people are strongly agree and 5 people are agreeing which
interprets that they are satisfied with the accounting procedures. Question no two people
are agreeing 6 of them are strongly agreeing and 2 of them are agreeing which interprets
they follow the ABC techniques. Question no three people are agreed, of which 3 are
strongly agree and 5 are agreeing which interprets ABC is solution of preparing expense
plans. Question no four people are agreeing of which 4 are strongly agree and 4 are
agreeing to the statement which interprets that it help in developing monetary reports.
Question no five people are agreeing of which 2 are strongly agree, 5 are agreeing and 1
is neutral which interprets ABC gives corporate competency. Question no six people are
agreeing of which 2 are strongly agree, 4 are agreeing and 2 are neutral which interprets
that firms can achieve goals with adoption Activity-Based Costing. Question no seven
mostly people are agreed of which 2 are strongly agree, 3 are agreeing and 3 are neutral
which interprets that Activity-Based Costing help in appropriate decision making.
Question no eight most are agreed of which 7 are agreeing and 1 is neutral which
interprets that Activity-Based Costing aims to determine cost of each item produced.
Question no nine people are agreeing of which 1 is strongly agree. 6 are agreeing and 1 is
neutral which interprets that by implementing ABC they have achieved high standards of
accounting procedures.
16
Table 4-1Case Processing Summary
N
Marginal
Percentage
Do you think your firm should
adopt the Activity-Based Costing
in case not already using?
Strongly Agree 3 37.5%
Agree5 62.5%
Are you satisfied with your
current accounting process?
Strongly Agree 3 37.5%
Agree 5 62.5%
Do you follow Activity-Based
Costing techniques?
Strongly Agree 6 75.0%
Agree 2 25.0%
In your opinion Activity-Based
Costing solution for preparing
the expense plans?
Strongly Agree 3 37.5%
Agree5 62.5%
In your firm Activity-Based
Costing help in developing
monetary report?
Strongly Agree 4 50.0%
Agree4 50.0%
Your firm Activity-Based Costing
gives corporate competency by
assessing accurate costs?
Strongly Agree 2 25.0%
Agree 5 62.5%
Neutral 1 12.5%
Your firm can achieve the goasl
with the adoption of Activity-
Based Costing?
Strongly Agree 2 25.0%
Agree 4 50.0%
Neutral 2 25.0%
Does the Activity-Based Costing
helo in appropriate decision
making in your firm?
Strongly Agree 2 25.0%
Agree 3 37.5%
Neutral 3 37.5%
In your firm Activity-Based
Costing aims to determine the
cost of each item produced?
Agree 7 87.5%
Neutral1 12.5%
By implementation of Activity-
Based Costing your firm has
achieved high standards of
accounting procedures?
Strongly Agree 1 12.5%
Agree 6 75.0%
Neutral1 12.5%
Valid 8 100.0%
Missing 0
Total 8
17
Table 4-2Model Fitting Information
Model
-2 Log
Likelihood Chi-Square df Sig.
Intercept Only 10.585
Final .000 10.585 7 .158
Link function: Logit.
The -2log likelihood shows the value of 10.585, which is significant for the study to show
positive influence. The chi-Square having the value of 10.585, which show a difference
between the existing and ABC implementation which have positive consequences, and
the degree of freedom is 7 the greater the value the great consequence. The sig. 0.158
shows that there a significance probability.
Table 4-3
Pseudo R-Square
Cox and Snell .734
Nagelkerke 1.000
McFadden 1.000
Link function: Logit.
Cox and Snell’s value is 0.734 which shows that there a room for improvement in the
procedures. The Negelkerke has the value of 1.000 which shows that The McFadden
have the value of 1.000 that interprets that the model has a greater magnitude than the
log.
18
Table 4-4
Parameter Estimates
Estimate Std. Error Wald df Sig.
95% Confidence Interval
Lower
Bound
Upper
Bound
Threshold [Q10 = 1.00] -19.293 25846.258 .000 1 .999 -50677.029 50638.442
Location [Q1=1.00] -38.624 14348.411 .000 1 .998 -28160.993 28083.745
[Q1=2.00] 0a . . 0 . . .
[Q2=1.00] -2.856E-14 26509.737 .000 1 1.000 -51958.130 51958.130
[Q2=2.00] 0a . . 0 . . .
[Q3=1.00] -77.248 20483.760 .000 1 .997 -40224.681 40070.184
[Q3=2.00] 0a . . 0 . . .
[Q4=1.00] -77.248 26337.477 .000 1 .998 -51697.755 51543.258
[Q4=2.00] 0a . . 0 . . .
[Q5=1.00] 38.624 .000 . 1 . 38.624 38.624
[Q5=2.00] 77.248 22085.873 .000 1 .997 -43210.268 43364.764
[Q5=3.00] 0a . . 0 . . .
[Q6=1.00] 38.624 .000 . 1 . 38.624 38.624
[Q6=2.00] 0a . . 0 . . .
[Q6=3.00] 0a . . 0 . . .
[Q7=1.00] 0a . . 0 . . .
[Q7=2.00] 0a . . 0 . . .
[Q7=3.00] 0a . . 0 . . .
[Q8=2.00] 0a . . 0 . . .
[Q8=3.00] 0a . . 0 . . .
[Q9=1.00] 0a . . 0 . . .
[Q9=2.00] 0a . . 0 . . .
[Q9=3.00] 0a . . 0 . . .
Link function: Logit.
a. This parameter is set to zero because it is redundant.
19
CHAPTER-FIVE
SUMMARY, FINDINGS, CONCLUSION AND RECOMMENDATIONS
20
5.1 Summary
In this study, I have found Activity Based Costing alludes to measure and monetary
reports and other data identified with the association's obtaining or utilization of assets
that give cost data, to be specific item costing for both administration and budgetary
bookkeeping. Manufacturing firm likewise executes a few methods for practical focal
point and firm achievement. Activity Based Costing execution is one of contemporary
administration bookkeeping strategies that give cost data helpfulness to create key choice
making, practical preference critical to working all the more effectively in fiercely
focused environment. Activity-Based Costing writing is an absence of exact confirmation
for examining the relationship in the middle of precursors and results of Activity Based
Costing usage. The Activity Based Costing implementation has an effect on firm
achievement. The impact of Activity-Based Costing Implementation impact on the
following elements choice making viability, suitable expense plan setting, monetary
report convenience, corporate competency, firm achievement. The fruitfulness of the
Activity-Based Costing on the firm which came achieve the choice making viability,
suitable expense plan setting, monetary report convenience, corporate competency, and
firm achievement. The purpose of the study was to educate the poor manufacturing firms
of Pakistan that are not using Activity-Based Costing to implement it in their operations
and know the execute cost this being incurred while operating the plant and delivering
final product to the customers. The cost accounting methods have lost their productivity
in giving the complete image of the costs therefore Activity-Based Costing is the answer
for the customary method for expense reporting. It builds contention in the way that the
today's record frameworks encourage authoritative accounting and reporting essential yet
not satisfactory for an interior utilization or for a procedure based choice making. The
article additionally uncovers the defects in the standard costing framework as the
framework is deficient and naturally miscalculates direct or overhead expenses and
structurally inadequate to permit leaders to quantify and separate costs. To outline
thinking, gave side-by-side illustrations of how expenses are caught, summarized and
reported by means of the general record and Activity-Based Costing. The audit of why
cost accounting is losing productivity has led to the solution for the problem. The ABC
technique instructs and makes them more intelligent in understanding the genuine cost of
21
methods, items, or administrations. Supervisors can utilize Activity-Based Costing to
investigate numerous different parts of their organization's operations. They can pose as a
viable rival the benefits that different clients, product offerings, brands, or districts create.
At that point, they can focus in on the dynamic of the productive ones. The type of study
is causal and descriptive because it is intended to investigate the implementation of
Activity-Based Costing has impact on the factors that are researched. The population of
the study is manufacturing firms listed on the Karachi Stock Exchange KSE. The data for
the research was collected through distribution of questionnaire to the employees of the
manufacturing firms to know what they believe about the Activity-Based Costing
therefore the result can be presented to key personnel of the firms to implement the
Activity-Based Costing. The questionnaire consists of questions with likert scale for the
answer selection. The research has found positive result in the implementation in the
manufacturing firms. The result was analyze by ordinal regression using SPSS software.
5.2 Findings
The study has found that the implementation of Activity-Based Costing has the influence
on the choice making viability, suitable expense plan setting, monetary report
convenience, corporate competency, and firm achievement, which can make the firm
more profitable in their operations. The result of Cox and Snell is 0.734, Nagelkerke is
1.000, and McFadden is 1.000.
5.3 Conclusion
This study has researched the analysis and implementation of Activity-Based Costing has
the positive consequence on the manufacturing firms. It has positive impact on choice
making viability, the firm’s personnel can easily make effective and efficient decision
making regarding allocating productions. It has impact on suitable expense plan setting
by this they can set plans for their expenditures. Monetary report can be conveniently
produced without going for a too much headache. The firms can achieve corporate
competency when it knows where it is standing in the market. By implementing the
Activity-Based Costing, the firms can achieve high standards of accounting procedures;
they can become profitable and competitive in the marketplace.
22
5.4 Recommendations
The further areas that can be researched are:
The implementation of ABC in below sectors.
FMGCs
Textile Industry
In addition, other sectors listed on Islamabad Stock Exchange and Lahore Stock
Exchange.
6 Bibliography
23
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Anderson, L. (1999). Activity Management: Reviewing the Past and Future of Cost
Management. Journal of Cost Management.
Askarany, D., & Yazdalifar, H. (2007). Why ABC is not widely implemented?
International Journal of Business Research, 93-98.
Bains, L. (2010).
Baird K, G. H. (2007). Success of Activity Management Practices: the Influence of
organization and Cultural Factors. Accounting and Finance, 47-67.
Baird., K. (2007). Adoption of activity management practices in public sector
organizations. Accounting-Finance No. 47, 551-569.
Barrett, M., & Olson, K. (2002). Verification Strategies for Establishing Reliability and
Validity in Qualitative Research. Vol 1, No. 2.
Bescos, P., Cauvin, E., & Gosselin, M. (. (2002). Activity based costing and activity
based management. Compatilbe Control Audit Special Issues, 229-244.
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25
APPENDIX-A
QUESTIONNAIRE ABOUT ACTIVITY-BASED COSTING IMPLEMENTATION IN MANUFACTURING FIRMS OF PAKISTAN
Personal Details:
What is the name of your firm?
__________________________________________________
What is your position in your firm?
__________________________________________________
Consider the below table for your answers:
Strongly Agree Agree Neutral Disagree Strongly Disagree
1 2 3 4 5
Are you satisfied with your current accounting process? 1 2 3 4 5 Do you follow Activity-Based Costing techniques? 1 2 3 4 5 In your opinion Activity-Based costing solution for preparing the
expense plans?1 2 3 4 5
In your firm Activity-Based costing help in developing monetary report?
1 2 3 4 5
In your firm Activity-based costing gives corporate competency by assessing the accurate costs.
1 2 3 4 5
Your firm can achieve the goals with the adoption of activity-based costing.
1 2 3 4 5
Does the Activity-Based Costing help in appropriate decision making in your firm?
1 2 3 4 5
In your Activity-Based Costing, aims to determine the cost of each item produced.
1 2 3 4 5
By implementation of Activity-Based Costing, your firm has achieved high standards of accounting procedure.
1 2 3 4 5
Do you think your firm should adopt the Activity-Based Costing in case not already using?
1 2 3 4 5
26
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