An Application of Activity Based Costing in Higher Learning Institution: A Local Case Study

Abstract

The widespread environmental change has forced many organizations to change and rethink their business and competitive strategies, particularly cost management system, in order to achieve the competitive edge in the marketplace. Successful organizations are those that are able to improve quality, lower costs and efficiency of operations and eliminate products and services that incur losses. This explains why some organizations are successful while others fail. An organization costing system is a system that helps the management with the strategy planning while the system plays an important role in providing accurate cost information about the products and customers. In other words, the costing management system is important to provide timely and quality information to help managers in their decision making process. To achieve this, many organizations shift their focus from conventional or traditional costing system to in increasingly popular cost methodology system that is Activity- Based Costing (ABC). This system simply collects cost in functional activity cost pools and then applies costs to products/services using individual cost drivers (Brignall, 1997). Initially when this system was introduced, it was only popular among the manufacturing context; however, now it also pulls attention of the service sectors. Kock (1995) noted that it is now more important than ever to have access good information in decision-making in the management of service firms. A number of research and studies reveal how the ABC system in the service sectors has effectively kept the operational cost at marginal level and still be able to provide better customer service at the same time. Thus, this case study analyses how an ABC costing system that improves operations and to better meet the needs of University customers in a more cost – effective manner.