Cost Management in Sri Lanka: A Case Study on Volume, Activity and Time as Cost Drivers

Janek Ratnatunga, Michael S.C. Tse and Kashi R. Balachandran

The International Journal of Accounting, 2012, vol. 47, issue 3, 281-301

Abstract: Despite its theoretical superiority, the activity-based costing (ABC) model has had only moderate success in replacing the traditional volume-based absorption costing models in complex organizations worldwide. Even in organizations that have launched ABC projects, the implementations often do not sustain. In response to this general lack of enthusiasm worldwide for ABC, accountants developed the time-driven activity-based costing (TDABC) model as an alternative cost allocation model. This paper presents a comparison of the TDABC model with ABC, and considers if this alternative cost allocation model (1) is easier to implement from an international perspective and (2) provides comparable cost information for decision making. We use a case study in a country outside the model's country of origin to understand the similarities and differences in absorption costing systems that use ‘volume,’ ‘activities,’ and ‘time’ as the drivers of indirect cost allocations. We also use the case study to ascertain if any country‐specific factors impede ABC implementation. We conclude the following: the TDABC model has similar implementation complexities to ABC if modelling conditions are strictly adhered to; these complexities are independent of country‐specific factors; and in its simplest form, the model generates the same decision information errors of traditional costing.

Keywords: Cost management; Activity-based costing; TDABC; Time-driven activity-based costing (search for similar items in EconPapers)
JEL-codes: M41 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:accoun:v:47:y:2012:i:3:p:281-301

DOI: 10.1016/j.intacc.2012.07.001

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