A Procedure for Smooth Implementation of Activity Based Costing in Small Companies

Narcyz Roztocki
Jorge F. Valenzuela
Jose D. Porter
Robin M. Monk
Kim L. Needy

Roztocki, N., Valenzuela, J.F., Porter, J.D., Monk, R.M. and Needy, K.L. "A Procedure for Smooth Implementation of Activity Based Costing in Small Companies," 1999 ASEM National Conference Proceedings, Virginia Beach, October 21-23, 1999, pp.279-288.


This paper describes a procedure that allows small companies to smoothly switch from a traditional costing system to an Activity Based Costing system at low risk and with minimal investment. The paper focuses on any type of small company (less than 100 employees) for which the standard implementation of Activity Based Costing is too expensive and complex. The implementation guide leads a company step-by-step through Cooper’s two-stage activity based cost system model. The complete implementation procedure consists of eight major steps. At first, decision-makers choose among three methods, educated guess, systematic appraisal, or actual data collection, for obtaining cost information. At this stage, the decision-makers determine the level of accuracy that is needed and the amount of money to be assigned to this project. Next, the overhead expenses such as administration, rent, utilities, and transportation are compiled into product cost information using newly developed matrices. Using these matrices, cost related calculations are simplified and thus the overhead costs are easily traced to the cost objects in the final step. The easy-of-use of the proposed procedure is illustrated using actual data from a small tool & die manufacturing company.


Activity-Based Costing, Small Manufacturers, Small Business


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