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Activity-Based Costing System

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International Journal of Business and Management

Vol. 6, No. 11; November 2011

Activity-Based Costing System in the Service Sector: A Strategic Approach for Enhancing Managerial Decision Making and Competitiveness
Ashford C. Chea School of Business, Kentucky Wesleyan College 4721 Covert Avenue, Evansville, IN 47714, USA Tel: 1-812-471-9341 E-mail: achea@ix.netcom.com Received: June 21, 2011 doi:10.5539/ijbm.v6n11p3 Accepted: July 4, 2011 Published: November 1, 2011 URL: http://dx.doi.org/10.5539/ijbm.v6n11p3

Abstract The author begins the article by outlining a brief historical evolution of activity-based costing (ABC) in the USA preceded by an operating definition of terminologies. Next, he presents the literature review and the methodology employed during the study. He reviews the application of ABC in the service sector, followed by an analysis of the unique attribute of the service sector. Moreover, the researcher briefly profiles several service-oriented firms that have successfully adopted and implemented ABC, and presents his findings from the study. He then addresses the limitations of ABC in the service sectors and offers strategies for dealing with these drawbacks. Finally, the researcher outlines the managerial implications of implementing ABC in the service sector. Keywords: Activity-based costing, Service sector, Managerial decision making, Cost measurement 1. Introduction The concept of activity-based costing (ABC) was introduced in the US, initially in the manufacturing sector during 1970s and 1980s. Robert Cooper and Robert Kaplan brought the ABC concept to light and published the body of knowledge in the Harvard Business Review in 1988. Cooper and Kaplan defined ABC method as an approach to solve the problems of traditional cost management systems; that is, the conventional cost accounting systems are often unable to

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