Working Paper Series: Abc System

Topics: Cost accounting, Management accounting, Costs Pages: 15 (4924 words) Published: September 7, 2012
CHED Center of Development in Business and Management Education

College of Business and Economics

Activity based costing (ABC) vs. traditional cost accounting system among Top 500 corporations in the Philippines

SERIES 2004-011

Marivic V. Manalo, CPA MBA
De La Salle University – Manila, Philippines

The CBERD Working Paper Series constitutes studies that are preliminary and subject to further revisions. They are being circulated in a limited number of copies only for purposes of soliciting comments and suggestions for further refinements. The studies under the Series are unedited and unreviewed. The views and opinions expressed are those of the author(s) and do not necessarily reflect those of the Center. Not for quotation without permission from the author(s) and the Center. For comments, suggestions or further inquiries please contact: Center for Business and Economics Research and Development (CBERD) 2nd Floor, Medrano Hall, La Salle Bldg., 2401 Taft Avenue, Manila, Philippines Tel Nos: (632) 3030869 and (632) 5244611 loc. 149; Fax No: (632) 3030869 Email: Or visit our website at

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About the author
Ms. Marivic Valenzuela-Manalo is an Assistant Professor at the Accountancy Department of the College of Business and Economics, De La Salle University - Manila. A Doctor In Business Administration Candidate of DLSU, her research focus is in the area of Environmental Accounting and Sustainability and Activity Based Costing. She received her Master in Business Administration from DLSU and her undergraduate degree in Bachelor in Science of Commerce major in Accounting at the University of Santo Tomas.

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Table of Contents Introduction Research Problem Research Objectives Review of Related Literature Traditional Cost Accounting Today Activity Based Costing Perspective Importance of Activity-Based Costing in the Changing Business Environment Activity-Based Costing in the Philippines Conclusion Areas of Further Research References Page 1 3 3 4 4 5 6 8 9 10 11

List of Figure ABC CAM-I Model 2

List of Table Summary of ABC Respondents’ Telephone Survey 8

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Activity-Based Costing is a management accounting tool used to guide in the strategy formulations of the company. This paper investigates the current adoption of Activity Based Costing among Top 500 Corporations in the Philippines. A telephone survey was conducted to know the current costing method these companies are using. The result of the study indicates that only few companies have adopted Activity Based Costing in their current operation. This simple study also reveals that Activity-Based Costing System is not yet fully appreciated by most of the companies here in the Philippines. In spite of the inherent strengths in the ABC model, very few companies have opted to adopt it in their business operations. The researcher, through the survey conducted was able to know some of the reasons for ABC’s low adoption in the Philippines. Among the reasons were: (1) employees lack of basic knowledge of ABC techniques; (2) employee resistance; (3) organizational changes essential with the use of ABC. Some respondents trace the source of hindered adoption of ABC to technical as well as complexity of the steps involved since ABC requires detailed records of the costs associated with producing products and services as compared to traditional methods. According to some respondents, this detailed record keeping requires more effort from the accountants and time consuming. Others feel that various companies would adopt ABC more if the accountants themselves marketed it better. The study serves as an eye opener regarding the extent of adoption of ABC system in the Philippines. There are still a lot of things that can be researched on regarding the implementation and effectiveness of activity based costing system as a management tool for companies in the Philippines....

References: Carter, W and Usry, M. (2002) Cost Accounting, 13th edition, Thompson Learning. Latshaw, C. A. and Cortese-D, Teresa M. (2002) Activity-Based Costing: Usage and Pitfalls, Review of Business, Winter. Cokins, G. (2001) If ABC is the Answer, What is the Question?, Activity-Based Cost Management in Government. The Fookien Times Philippine Yearbook, Fookien Times, Manila, (2001). Kotler, P. (2000) Marketing Management, Millennium Edition, (Prentice Hall, New Jersey). Roztocki, N., Valenzuela, J., Porte, J., Monk, R., Needy, K. (1999) A Procedure for Smooth Implementation of Activity Based Costing in Small Companies. Olsen, R. (1997) Activity-Based Costing: A Decision-Making Tool, The Manufacturing Report, Lionheart Publishing, Inc. Shields, M. D., (1995) An Empirical Analysis of Firms’s Implementation Experiences with Activity-Based Costing, Journal of Management Accounting Research, Fall.
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