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ACTIVITY-BASED COSTING BEYOND THE SMOKE AND MIRRORS ACTIVITY-BASED COSTING BEYOND THE SMOKE AND MIRRORS Summary The business environment in the 1990s is markedly different from that of the past when conventional cost accounting procedures were established Activity-based costing ABC pioneered in the late 1980s offered a new costing approach consistent with the changed environment However ABC did not diffuse rapidly into the business community This article demonstrates why adopting ABC is important by documenting the potential of ABC in supporting contemporary managerial decision making Introduction Everything happens faster in business today Even new management tools some say fads follow a meteoric path For example the ink on new articles describing activity-based costing ABC was hardly dry before consulting firms had integrated it into their slick brochures and presentations All they needed was someone to use it To illustrate Romano identified only 110 installations by August 1990 nearly two years after the procedure was developed with 77 percent of these in two major firms 13 Perhaps this phase in the process of introducing the new procedure could be called the period of wild over-promise However even by the mid-1990s ABC has not spread widely throughout the industry and even in large firms widespread success of ABC is not obvious 16 According to Ness and Cucuzza thousands of companies have adopted or explored the feasibility of adopting ABC However they estimate that no more than ten percent of companies now use activity-based management in a significant number of their operations 11 A survey conducted by the Institute of Management Accountants cost management group found that only 29 percent of companies used ABC instead of traditional systems but this was an increase from 25 percent in the previous year 10 Among reasons cited for low adoption were employee resistance and major organizational changes required with the use of ABC 11 Some trace the source of slow adoption of ABC to technical as well as cultural issues 5 Others
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