A contingency model of activity-based costing (ABC) systems : an empirical investigation in the UK's manufacturing business units

Abstract

The contingency approach is a recent and important development in ABC research. It is suggested that ABC system success will depend upon specific organisational factors such as strategy, structure, technology, and environment.  However, less contingency-based research has been done on ABC systems in the UK.  Therefore, a contingency model of ABC systems has been developed in order to empirically examine the relationship between ABC systems, competitive strategy, advanced manufacturing technology (AMT), management accounting practices, and the performance of the UK’s manufacturing business units.

Precisely speaking, this study examines one major question: How does the fit between ABC systems, competitive strategy, AMT, and management accounting practices affect the performance of the UK’s manufacturing business units?  To investigate this question, a reliable and valid instrument was developed.  Extensive efforts were made to ensure content validity during instrument development by carefully designing processes for item generation, pre-testing, and pilot study testing. A cross-sectional mail survey of a sample of 112 UK’s manufacturing business units has been conducted.

The empirical findings of the study show that the use of ABC systems is associated with the performance of the UK’s manufacturing business units. In addition, structural equation modelling (SEM), AMOS 5.0 analysis, offers statistical evidence that the patterns of ABC use by the adopters would influence business units’ performance. The results also indicate empirical support for the study’s major premise that the fit between competitive strategy, AMT, and management accounting practices will be associated with the adoption of the different patterns of ABC systems.

This study contributes to the knowledge and management accounting literature by providing some explanations on the contextual factors that influence the adoption and success of ABC systems.  The study concluded that it is not necessarily true that business units that have not adopted ABC systems could improve their performance by simply introducing ABC as stand alone techniques.

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