Activity-Based Costing and Total Quality Management

Activity-Based Costing refers to the set of value-added or adjusted accounting concepts and systems that certain managers have adopted as a method to trace historical costs (resources consumed) to activities and then, through those activities, to products or services provided (Sharman, 1994; Tavana & Rappaport, 1997, 307). ABC allows local managers to develop activities for their cost needs while simultaneously generating service or process costs. The advantage of the detail in ABC for the manager is to give visibility to value added and non-value activities (Masters, Allenby, La Londe, & Maltz, 1992, 47; Rose, 1991).

To Daly (2001),ABC is a technique to quantitatively measure the cost and performance of activities, resources and cost objects, including when appropriate, overhead. ABC captures organizational costs for the factors of production and administrative expenses, and applies them to the defined activity structure. Minahan (1996) points out that the application can be as rigorous as a definite mathematical distribution or as creative as a selective assignment using a surrogate indicator. Regardless of the method, ABC is a process of simplifying and clarifying decisions required by the process evaluators and senior management using activity costs rather than gross allocations(Johnson 1995).

Within this framework, are further sub-definitions. "Activities," for

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vity. This resistance may be shown in slowdowns in productivity when workers are aware that they are being observed and measured (Jenks, 1990, p. 8). How is ABC Used? ABC can best be understood by thinking of its relation to systems Activity-Based Costing. As defined by the Council of Activity-Based Costing Management, "Activity-based Costing is the process of planning, implementing, and controlling the efficient, effective flow, and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements" (Minahan, 1996, 48). In its relationship to Management, and specifically to Total Quality Management (TQM), ABC is concise implementation of macro-and-micro management techniques that are designed to ensure that products are delivered on time and on budget. Such an effect is critical in today's marketplace, where the importance of effective ABC management to achieve excellence cannot be ignored (Sharman, 1994). The first element of management organization to achieve Activity-Based Costing excellence is establishing a system(and backup systems)that have the right elements in the right place in a timely manner in order to fuel productivity.
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