Akuntansi Manajemen

ABM (Activity Based Costing)

 

Abstract

This paper explores the application of Activity-Based Costing and Activity-Based Management in e-commerce. The proposed application may lead to better firm performance of many companies in offering their products and services over the Internet. A case study of a fictitious Business-to-Customer (B2C) company is used to illustrate the proposed structured implementation procedure and effects of an Activity-Based Costing analysis. The analysis is performed by using matrixes in order to trace overhead. The Activity-Based Costing analysis is then used to demonstrate operational and strategic Activity-Based Management in e-commerce.

Key words: Activity-Based Costing, Cost Control, Costing System, Customer Profitability, E-Commerce, Activity-Based Management.

 

1 Introduction

During the period from the late 1990s until the spring of 2000, a then emerging technology, the Internet, created unprecedented over-optimism about investing in Internet start-ups [17]. In the following crash, starting in April 2000, many well-known Internet companies, such as boo.com, e-Toys, garden.com, pets.com, and streamline.com, have terminated their business operations and disappeared from the marketplace [16]. Although many investors have lost both their money and their faith in the “New Economy,” the Internet is now a standard way to conduct business.

However, even today, e-commerce presents a substantial risk [7] and many Internet companies experience higher overall costs than comparable, traditional or click-and-brick companies [10]. One of many reasons for this cost disadvantage of Internet firms could be suspected in the absence of proper cost management systems in these firms. Activity-Based Costing (ABC) is a cost management system which has already proven successful in keeping costs under control for traditional companies and has been investigated for its possible implementation in Internet firms [12].

In the last three decades, ABC was implemented mainly in large manufacturing and service companies as a replacement for volume-based costing systems [8] ,[9]. The main motivation for replacing traditional cost methods by ABC was the frequent inappropriate allocation of costs that become detrimental to decision-making in the current era of global competition [6].

In contrast to the traditional costing systems, ABC is more reliable in providing accurate cost estimates for various objects, such as products, services, processes, projects, or customer segments [5]. ABC uses activities as a medium to trace costs rather than arbitrarily allocating them as it is done under the traditional costing systems [1]. After implementation, many companies were able to derive tangible benefits from using ABC by reducing overall costs, establishing new pricing policies, identifying opportunities for improvement, and determining a more profitable product mix [2]. Frequently, the ABC analysis established the foundation for Activity-Based Management (ABM), defined as a set of actions based on ABC analysis and conducted to increase efficiency, lower costs, and to improve asset utilization [4].

Although the ABC/ABM methodology appears to be an excellent managerial tool for Internet companies, this subject has not been featured prominently in the work of academic researchers. As it is the case with the small manufacturing companies, where ABC implementations differ from large manufactures [11], it could be reasonably expected that ABC/ABM for e-commerce will be also different. Thus, this paper examines the application of ABC/ABM specifically to e-commerce. In essence, this paper builds on our earlier work [12] that proposed to use ABC for e-commerce. In contrast, however, the major objective and contribution of this paper is to expand the investigation to ABM methodology [12]. By providing a step-by-step ABC/ABM implementation procedure, this paper also aims to help managers in companies engaged in e-commerce to gain an understanding of the value of a dependable costing system.

The remainder of the paper is constructed as follows. The next section describes the proposed ABC/ABM implementation procedure for e-commerce. This procedure is then illustrated with an application example from a fictitious Internet company. In the next section, the ABC analysis serves for discussion about ABM. Finally, the paper concludes with pointing to the advantages of ABM for e-commerce.