Technium Vol. 2, Issue 7 pp.

160-178 (2020)
ISSN: 2668-778X
[Link]

Integrating Activity Based Costing (ABC) with Enterprise

Resource Planning (ERP) for Effective Management: A
Literature Review

Thomas Kitsantas1, Athanasios Vazakidis2, and Constantinos J. Stefanou3

1
University of Macedonia, Thessaloniki Greece, School of Information
Sciences, Department of Applied Informatics,
2
University of Macedonia, Thessaloniki Greece, School of Information
Sciences, Department of Applied Informatics,
3
International Hellenic University, Thessaloniki Greece, School of Economics
& Management, Department of Accounting and Information Systems,
1
[Link]@[Link], 2vasak@[Link], and 3stefanou@[Link]

Abstract
In the age of a global competition environment, the accurate costing
measurement is important for planning and decision-making. To achieve this
goal, contemporary costing methods are tested and applied such as the Activity
Based Costing (ABC) in conjunction with the use of modern Information
Technology (IT). The review study attempts a comparative analysis of both ABC
and Traditional Costing Accounting (TCA), examining the main themes
emerging from academic research and practitioners concerning the challenges,
benefits, and barriers of ABC, analyzing the impact of the integration between
ERP and ABC systems and its effect on management performance. A review
of the literature generated an initial pool of 322 studies. Upon extensive review,
38 studies were found to be relevant to this topic. It appears from the review
and analysis of the academic literature and professional sources that a
successful integration among ERP and ABC minimizes the operation costs,
enhances competitiveness, improves the management of the enterprise, due to
its abilities to provide more accurate costing information for a strategic decision.
However, practical implications in adopting ABC under ERP could be very
challenging, requires a huge amount of internal resources, commitment among
employees, and top management. In closing, additional research studies
employing both qualitative and quantitative methods as well as case studies are
needed in order to provide insights into the impact of ERP and detailed
implications of how the ABC accounting system is adapting to the ERP
environment and its effect on firm performance.

Keywords: Activity Based Costing, Traditional Costing Accounting, Enterprise

Resource Planning, Management and Information Technology.

JEL, codes: M40, M41, M10, M11, M15

160
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

1. Introduction
In today’s advanced and competitive manufacturing environment, the need for
more accurate cost information for planning and decision-making is crucial.
Researchers, such as Mia and Chenhall [1] argue that perceived environmental
uncertainty requires the cost system to provide information on the cost of goods
or services at the appropriate time and analysis is necessary for planning and
decision-making. Copper [2], Ittner et al. [3] claimed that increasing levels of
competition in relation to the shorter life cycle of manufactured products require
a change in managing costs. Thus, the costs play a crucial role in the growth of
corporations, especially in the industrial sector.

Traditional Costing Accounting (TCA) systems were developed to comply with

the external financial reporting requirements of large enterprises such as textile
mills, railroads, steel companies, and retail companies in the United States [4].
At that time, most companies manufactured a narrow range of products or
services, and TCA systems were appropriate because overhead costs were low
in comparison to direct costs. Therefore, the use of the TCA systems are
specifically beneficial when there are a few similar products that have the same
production process and production-related activities. In other words, TCA uses
to group all manufacturing overhead costs in one single cost driver or cost pool
to units produced such as rent, utilities, direct labor or machine hours or output
volume to allocate the overhead costs, systematically distort product costs in a
modern manufacturing environment in which overhead cost is a significant
portion of product costs.

The growing industrial complexity and product diversity have made the
emergence of the Activity Based Costing (ABC) system for growing
organizations. ABC is an important tool that ensures accurate product costs as
compared to the TCA system. Thus, ABC is explained by numerous authors [5,
6] as a strategic tool that ensures accurate product costs as compared to the
TCA system.

However, regardless of the numerous researches and surveys on TCA and

ABC, a few studies have examined the integration of ABC within the ERP
environment, underlined both the advantages and disadvantages of the two
systems. Therefore, this review study is trying to investigate the contingent
factors influencing and motivating ABC’s implementation success under the
ERP system and its organizational performance.

The objective of this study is to provide an overview of the cost accounting

systems, both TCA and ABC system. The study analyzes findings of empirical
studies and surveys, with an emphasis on ABC’s challenges, benefits,
adoption, and barriers. Furthermore, this review presents the conceptual and
theoretical framework of the ABC system within the ERP environment. In
particular, the study aims to analyze, highlight, and address all issues arising in
the adoption and implementation of ABC into the ERP environment for effective
management.

By reviewing and analyzing empirical research and professional sources, the

study provides an overview of emerging themes relevant for future research

161
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

and practice. By doing so, this review study makes two major contributions.
First, it is one of the very few studies to provide an integration of ERP research
in the ABC accounting context, offering an overview of this innovation to
practitioners and academics. Second, it provides an overview of how ABC could
change and be impacted by ERP improving the management of the enterprise.
Thus, this study supports both current and future practitioners in how to
approach the fast-moving ERP advancement into ABC accounting.

The methods used for this review study were mainly: data collection - grounded
theory and comparative analysis. Data collection was done in different ways.
For instance, using existing knowledge in the literature collecting and reviewing
academic publications on ABC and ERP field. We sourced relevant publications
and empirical studies by launching a keyword search on Google Scholar. From
this initial pool, only peer-reviewed academic journal articles or book chapters
were considered. Upon extensive review, we excluded book chapters and
journal articles, whose content was not related to ERP and ABC accounting
domain. The employed keyword combinations are listed in Table 1. This search
provided an initial pool of 322 academic sources.

Table 1: Initial Google Scholar search results

Key search term combinations Number of studies

1. "ERP System" and "Activity Based Costing System" 149
2. “ABC Costing" and "ERP System” 102
3. "Activity Based Costing System" and "Enterprise 44
Resource Planning System"
4. "ERP" and "ABC Accounting System" 18
5. "ABC Accounting System" and "ERP System" 9
Total 322

Furthermore, after eliminating conference papers, book reviews, and articles,

we obtained a total of 38 publications that explicitly address ERP in the ABC
accounting system. Hence, the scientific rigor in the conduct of each step is
very critical to an analysis of its quality for this review study. Moreover,
cooperative analysis is very crucial for this review, since it is the main product
of the research as it produces new knowledge based on complete data
collection.

The remainder of this review study is organized as follows: in section 2, we

present a literature review of both costing accounting systems, TCA and ABC
and the impact of ERP on ABC system; in section 3, we present a review of
the ABC concept; in subsection 3.1, we review the theoretical frameworks to
obtain a holistic picture of the cost accounting systems, both ABC versus TCA
systems; in subsection 3.2, we investigate the challenges, the benefits and the
buriers of ABC adoption; in section 4, we examine the impact of ERP system
on ABC adoption; in section 5, we examine the empirical literature focusing of
ABC adoption for effective management; in section 6 and 7, summary-
conclusions and suggestions for future research for further study are presented.

2. Literature Review

162
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

TCA systems try to assign cost directly to products, rather than to activities first
and then from the activities to product units [7]. This approach suffers from
several defects that result in distorted costs for decision-making. Thus, the
typical cost report gives information on what is spent, but not why it is spent.
This can lead to inaccurate determination of product or service costs, figure 1
illustrates the (TCA).

Figure 1: illustrates: The Traditional Cost Accounting System (TCA).

Resource Allocation

However, the growing industrial complexity, the shorter life cycle of

manufactured products, and product diversity have led to the development of
the ABC system for growing organizations [8]. The ABC system was formed to
solve the problems of TCA management systems; which are often unable to
identify correctly the true costs of products and services. ABC was introduced
to address the deficiencies of the TCA system since the TCA system leads to
cost distortion [9, 10]. The ABC system is required for accurate cost and profit
analysis, especially for organizations that have high overhead cost and diversity
in their processes and products. ABC is important since it is impossible to
manage something if it is not measured accurately. Hence, ABC improves
decision making by providing timely and accurate cost-related feedback that
extends to all business functions [11].

Specifically, ABC was designed and developed to overcome the following

defects and weaknesses found in the TCA system:
a) lack of accurate measures for assessing the cost of products [12];
b) failure to handle the production overheads [13];
c) failure to allocate non-manufacturing costs that are associated
TAM Model
with the production, such as administrative expenses [9];
d) failure to contribute decision making and provide cost precision
accurate of costs [14]; and
e) inability to modify cost behavior patterns and provide relevant
long-term variable costs for strategic decisions [14].

Moreover, in today’s rapidly changing business world, most of the growing

corporates and organizations are moving towards Enterprise Resource
Planning (ERP) systems, in order to integrate their cross-functional business
processes. An ERP system promises more and better information, which can
lead to lower costs and improve management performance. It integrates and
automates most business processes and shares information enterprise-wide in
real-time [15]. Therefore, combining ABC and ERP systems are useful in the
following two situations:

 Integrating ABC under ERP environment increases the organization’s

efficiency and improves cost control and decision-making [16], and

163
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

 the use of modern IT technology boosts the adoption of ABC into the
ERP system to improve its overall success and performance [17].

Thus, the combination of ABC and ERP management systems will not only
improve the accuracy of cost calculation, but also raise the enterprise
management level, and enhance the competitive power of the enterprise in the
current economic environment.

3. The ABC Concept

Activities consume resources, activities cause costs, whereas outputs consume
activities; thus, activities are the core of the ABC concept [18]. The focus of
ABC is on identifying the costs of major activities and allocating such costs to
objects based on their usage of activities [19]. It is apparent that the ABC
system looks for the cause of costs or cost drivers of organizational activities,
and traces these activities sequentially to products [20]. By this philosophy,
ABC can directly assign manufacturing costs to products and can provide
insightful information regarding the authentic costs of an operational process
[21]. Therefore, ABC prevents cost distortion. Cost distortion occurs because
TCA combines all indirect costs into a single cost pool. Cost distortion is
prevented in ABC by adopting multiple cost pools (activities) and cost drivers,
figure 2 illustrates the ABC system. Hilton, et al., [22], identified the basic steps
of ABC as follows:

 Identify and measure the different levels of resource costs.

 Measure the costs of individual activities.
 Identity cost-driver bases and measure activity cost-driver rates.
 Use cost-driver rates to assign activity costs to products, jobs, and
projects.
 Analyze the profitability of products using ABC unit-level and full costing.

Figure 2: illustrates: The interrelation between the main concepts in ABC.

Resource drivers Cost drivers

Process

3.1. ABC versus TCA systems

Today, companies produce a wide variety of products, and thus the current cost
scenario differs from that in previous decades due to the expansion of product
lines and marketing methods [13, 23]. Direct labor no longer reflects the primary
cost of production but instead now comprises uses only a small portion of it [23].
As a result, the direct labor hours or machine hours of manufacturing do not
provide adequate information for cost calculation [24]. At the same time,
expenses involving factory support operations, engineering, distribution,
marketing, and other overhead functions have increased [13, 25].

164
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

Consequently, TCA systems fail to allocate non-manufacturing costs that are

associated with production, such as administrative expenses [9]. TCA
contributes to poor decision making and distortion of costs [26] resulting in
distorted signals about the relative profitability of different products [27] and
global competitiveness.

According to Abd [5] stated that TCA is almost obsolete. Research evidence
indicates that businesses should intend to change and move to new
administrative-accounting practices while exploring ways to reduce costs [28].
As a result of that, ABC has been promoted as the basis for making strategic
decisions and improving profitability [24, 29].

However, Sartorius et al. [30] as well as Pavlatos and Paggios [31] accept that
TCA systems are even more widely adopted than the ABC costing method.
According to Sartorius et al. [30], it is not clear whether companies find the TAC
systems appropriate or if businesses simply do not consider the ABC costing
method as a better option. Furthermore, a large percentage of enterprises
failed to implement ABC successfully [32] with the main problems being
identified both at the design, technical and parameterization stages (complexity
and compatibility). Further, several problems associated with the high costs of
ABC implementation and maintenance [33].

Nevertheless, according to the literature, ABC method improves the

shortcomings of TCA systems by allocating the indirect costs to the products
produced and the services provided. The ABC system allocates costs to
products or customers, based on the resources they consume, [34]. Hence, the
TCA system is irrelevant and create a need for a new costing system such as
the ABC system, in order to meet the demands and expectations of the
manufacturing, service, and financial sector.

3.2. Challenges, Barriers, and Benefits of ABC

Despite the advantages of ABC over TCA systems, the adoption rate of ABC
remains low. Research indicates that the implementation of ABC is difficult and
complex, and there are many barriers such as lack of top management support,
employee resistance, lack of necessary internal resources, lack of
implementation expertise, and satisfaction with current systems [35, 36, 37, 2,
38, 39]. Others found that the major barriers to the adoption and implementation
of ABC were resistance from top managers and employees, lack of adequate
resources, and lack of experiences [40, 41]. For example, Cohen et al. [35]
found that Greek companies encountered ABC implementation difficulties in
certain fields, namely software selection, data collection, adequacy of
resources, and resistance of employees to ABC. The authors also determined
that the adequacy of resources is positively correlated with other variables such
as personnel resistance, prolongation of ABC timetable, and lack of top
management support.

According to Cobb et al. [42] identified that organizations have difficulties

implementing ABC, in selecting suitable activities and cost drivers and linking
cost drivers to individual product lines, as well as the uncertainty overusing ABC
for stock valuation for external financial reporting. Sartorius et al. [30]

165
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

interviewed 10 consultants, 5 ABC companies, and 5 non-ABC companies in

South Africa. The authors found that the main obstacles and difficulties in
implementing ABC application were lack of top management support, too
expensive to implement ABC, difficulty with data collecting, lack of skills, lack
of adequate IT systems, satisfaction with the existed cost management system
and problems identifying activities and selecting suitable cost drivers.

Likewise, Pierce and Brown, [43] conducted a study to determine the main
barriers that certain companies in certain industries face in the implementation
of ABC. They found several obstacles, including lack of support by top
management, employee training, lack of human resource availability,
complexity in establishing and selecting cost drivers, lack of knowledge and
experience of consultants, satisfaction with the current system that
organizations might have adopted, the simplicity of the manufacturing process
that organizations could have and the irrelevance of ABC to the nature of the
business. In addition, some organizations have not adopted ABC because they
believe ABC is a temporary fad whose appeal, like that of all fads, will eventually
pass [44, 45]. The following table 2 summarizes the main reasons (surveys and
case studies), that companies reject the adoption of ABC include:

Main Challenges and Authors

Difficulties implementing ABC
1. Technical issues - identifying [46, 47, 36, 35, 30, 43].
Activities and Cost drivers
2. Lack of Top Management [35, 48, 49].

3. Inadequate Computer [48, 49, 42, 35].

Software

4. Resistance to Change [47, 36, 30, 50, 35].

5. Internal Resources [47, 36, 41].

6. Time Consuming [48, 49, 43, 51, 52]
7. Cost Structure (Level of [12, 53, 26, 54, 49]
Overhead)
8. Satisfied with the Current [48, 49, 35, 30].
system
Table 2: The main Challenges and Difficulties in implementing the ABC
system.

Numerous research studies reported the benefits of ABC adoption that facilitate
cost management, cost reduction and process improvement of an organization.
Dubihlela & Rundora [55] and Ittner, Lanen & Larcker [56] found that ABC is
significantly associated with higher product quality and a decrease in cycle time.
Majid and Sulaiman [57] found that ABC implementation contributes
significantly to companies, especially in the manufacturing sector, and enables
firms to differentiate the value-added and non-value added activities.

ABC is providing a decent basis to appraise stock value for financial reporting
[46] and provide more accurate cost information for decision-making on product

166
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

mix [19]. According to Cagwin and Bouwman [58], ABC not only improves the
accuracy of product and service costing but also helps managers comprehend
how resources are used through financial performance, such as return on
investment and bottom-line statements. Cagwin and Bouwman [58] also
investigated the impact of ABC on 205 companies and found a significant and
positive association between ABC and financial performance as measured by
3 and 5-year return on investment. The authors found that ABC can be linked
to the organizational and financial performance of an organization as a modern
cost accounting.

Moreover, ABC improves profitability measurements and strategic decisions

about pricing, product lines and market segments [59, 60, 55]. While others
emphasize that ABC provides accurate allocation of overhead costs and
identification of areas of waste [55, 61]. Hence, the following is a summary of
the previous research studies conducted between 1989 through 2015 that
examined the main benefits of the ABC method:

1. Accurate allocation of overhead costs and identification of areas of

waste, [55, 61].
2. More accurate product costing and a meaningful financial and non-
financial measure that aids in cost management and performance
assessment, [59, 62, 55, 46].
3. Facilitating the elimination of waste by providing visibility of non-value
added activities and linking corporate strategy to operational decision
making [63].
4. Better profitability measurements and better-informed strategic
decisions about pricing, product lines and market segments, [59, 60, 55].
5. Management ability to target cost reduction, manage and control
budgets, measure performance, and increase efficiency, [59, 55, 64,
65].
6. Positive impact on business performance, [66, 67].
7. Facilitation of decision making, increase in productivity, and identification
of activities that don’t add value, [64, 61].
8. ABC not only improves the accuracy of product- and service-costing but
also helps managers comprehend how resources are used through
financial performance, such as return on investment and bottom-line
statements [58].
9. The basis for strategic decision making and measure continuous
improvement and performance, [68, 64].
10. Alleviation of managers’ concerns about the accuracy of cost allocations,
cause-effect relationship between allocations and resources consumed,
timeliness of cost/profit info, and ability to update systems, [59, 64].

4. The impact of ERP system on ABC

ERP system is an Information Technology (IT) infrastructure that facilitates the
flow of information within the organization [69] and requires investments and
significant organizational changes [70], whose implementation demands
special care to avoid further losses [71]. Therefore, ERP combines business
processes in both the organization and IT into one integrated solution and is a
way of doing business, not just a software package [72, 73]. ERP systems are

167
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

information systems that integrate all the activities and functions of an

organization to standardize its data and streamline its business processes. An
ERP system promises more and better information, which can lead to lower
costs. It integrates and automates most business processes and shares
information enterprise-wide in real-time [15].

It has been stated that IT has played a vital role in ABC adoption and
implementation, which has reduced the implementation costs and enhanced
activity-based analysis process [14]. Therefore, the need for integration
between ABC modules with other IT systems became popular in an attempt to
develop and implement it. The study by Shaw [74] discussed the move by giant
ERP vendors like SAP, Oracle, and PeopleSoft of investing in ABC
Technologies towards this path.

ERP and ABC have different management subjects, nevertheless, they still
have the basis for integration, such as the same costing objects ideas for cost
management and management purposes. Several researchers such as Kim
[75], Xihui and Zhenwei, [76] claimed that the ABC model is supported and
implemented more effectively using ERP technology. Vazakidis et al. [77]
examined the relevance of ABC in the Greek public sector. The authors
revealed that when combined with new technologies and new methods of
management, ABC can resolve most of the deficiencies of the public sector and
help produce services at a minimal cost.

Xihui etc al. [76] stated that the development of IT technology has further
promoted the improvement and enhancement of the ABC system. The
adaptability of ABC improved considerably through the use of modern IT
systems and under the ERP environment. Further, the modern IT systems
within the ERP environment reduced the difficulty of integration and influenced
effectively and positively to improve the cost management of enterprises [76].

Integrating the ABC within the ERP system can provide the ABC module with
data, contained in the ERP system efficiently and economically. Therefore, the
data that is crucial input for the ABC system, could remain within the ERP
system to minimize cost, as a data source to the ABC module. Shaw [74]
mentioned that the partnerships between ABC and ERP mean that operational
managers will have access to ABC data in real-time. Management accountants
and financial managers can conduct "what-if analysis" business solutions in an
online application such as ABC under the ERP environment.

Similarly, Huijuan et al. [78] have suggested that a dedicated ABC module in an
existing ERP system may save time and resources. Hence, manufacturing
organizations may also need to consider their available resources when
considering ABC software, as this may impact the efficiency of the ABC costing
model, and therefore be a factor in achieving ABC implementation success.

Thus, combining the ABC and ERP systems can be efficient and successful as
ERP makes it possible to determine the concept of the work center more
broadly. Baxendale & Jama [16], stated that ERP systems can significantly
provide the availability and reliability of activity cost-driver information by

168
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

integrating financial accounting, managerial accounting, cost accounting, and

production planning using a relational database. The following table 3 displays
a synopsis of the aforementioned research studies, which examines the main
factors for implementing ABC within the ERP environment.

The Main Factors for Authors

Implementing ABC within ERP
Environment
1. ABC within IT technology [14, 77, 76, 78].
reduces the implementation
costs and enhances activity
based analysis process
2. ABC method is supported and . [75, 76, 16].
implemented more effectively
using ERP technology
3. ERP resolves most of the [77, 76].
deficiencies and minimizes
costs for ABC
4. IT technology enhances ABC [77, 76].
system
5. ERP can provide data in real- [16, 74].
time on ABC system
Table 3: The main factors for implementing ABC within the ERP environment

Therefore, ERP systems can significantly increase the availability and reliability
of activity cost-driver information and improve the ABC system. The integration
among ABC and ERP means that managers will have access to ABC data in
real-time. Having a single integrated environment, ABC under ERP increases
the organization’s efficiency and competitive advantage while eliminating many
redundant activities which are essential to keep different systems synchronized
and this leads to a great reduction in the operating costs. Thus, ERP and ABC
systems will improve the organization's cost information while preserving the
quality of the services in a timely and effective way.

5. The Adoption of ABC for Effective Management

ABC is claimed as one of the two or three most important management
accounting innovations of the twentieth century [79]. Krumwiede [39]; Cooper
and Kaplan [80]; Cooper [2]; Groot [50], stated that ABC is useful for
organizations with large and growing expenses, increasing overheads, a large
variety in products, complex operations, and customer processes. Several
studies claimed that larger firms are more likely to adopt ABC, and they argue
that larger firms have the required resources and thus, they are more capable
of adopting ABC method [39, 32, 81]. Gosselin [82] indicated that the
organizational structure and its strategy affect the adoption and implementation
of ABC. Ahmed [83] stated that ABC is a strategic tool that ensures accurate
product costs and production planning. Booth & Giacobbe [84] found a
significant positive association between the overhead level and ABC adoption.

169
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

Numerous researchers stated that organizations implement ABC as a method

of measuring accurate cost information for product costing. Cooper and Kaplan,
[13] stated that the growing costs and product diversity are also a major reason
for the adoption of ABC. Ahmadzadeh et al. [8] found a positive association
between cost structure and the importance of cost information, products,
services, and ABC implementation. The research also revealed that many
companies proceed to the implementation of ABC because they want to
modernize their cost accounting system in order to better depict costs or to
improve their business processes. Other reasons that justify ABC adoption are
the allocation of indirect costs, managerial decision making, planning, and
organizational performance. Moreover, the decision to adopt ABC is often
driven by the need to improve customer profitability analysis and to gain more
accurate cost information for pricing or to prepare relevant budgets [55].

Several research studies argued that ABC is a modern costing methodology

developed to meet the demand of businesses to provide critical information for
decision-making [85] improving management performance. Managing an
organization requires accurate and timely information on the cost of processes,
activities, customers, and cost objects. ABC is a costing information system that
has emerged and been introduced as an alternative to address the weakness
of TCA accounting systems for organizations that need more accurate and
reliable costing information [13, 54, 10].

According to Ruan et al. [86] ABC is a scientific management accounting tool,

and thus it is bound to occupy an important position in the cost control of
Chinese organizations. ABC can provide more accurate and useful cost
information for performance measurement, cost control as well as strategic and
operational decision-making [87, 48, 88]. Thus, the implementation of ABC
offers valuable information for performance measurement, cost control,
strategic decision-making, and planning.

Haroun [89] indicated that ABC can assist manufacturing firms to allocate
indirect costs accurately and improve all levels of organization cost control.
Wen Subin [90] examined the application conditions of ABC and emphasized
its positive effect on the establishment of the cost accounting system. Hence,
when cost information derived from the ABC method, it can support pricing,
product mix, and decisions. Further, it can be effectively used for the
development of cost-effective product design and process improvement [91],
such as lower costs, improved quality, and decreased manufacturing cycle time
[56, 92].

ABC is a generally accepted costing application that provides significant

support in operating financial, strategic decision-making for effective
management [59]. The ABC system can identify problems in the business
process and solve bottlenecks, provide opportunities to redesign and develop
new products and services. Therefore, ABC is not only a costing tool but a way
of managing a modern enterprise [58].

6. Summary & Conclusion

170
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

This review revealed that adopting the ABC method could be very challenging.
ABC requires a huge amount of adequate resources and commitment among
employees and top management support. Further, several problems are
encountered in identifying activities and cost drivers and it is costly to implement
and time-consuming. Regardless of the above limitations, ABC has been widely
identified as a sophisticated cost management method that is used to manage
and reduce costs as well as improving business organizational performance and
financial management. Further, ABC is argued to provide more accurate
information for products and services. Moreover, ABC enhances cost control
and provides managers with relevant and timely information in today’s
competitive business environment.

Furthermore, this review study emphasizes that ERP can determine the
success of ABC implementation, and generate a number of benefits especially,
in a situation where the ERP system includes more than just the financial and
human resource module. It helps ABC managers make better product costing
decisions and it changes the whole structure of the ABC system, having less
uncertainty issues. The use of ERP and ABC systems increased the availability
of decision-support information for managers and save significant time and
resources. Thus, ABC and ERP systems can improve financial and
organizational performance for organizations.

Further, this study reviewed the theoretical and empirical literature concerning
the use of the ABC method to overcome the deficiencies of TCA systems,
recommending the ABC method as a modern management tool. Through this
review, we found that ABC has far more advantages over TCA systems,
improving profitability, performance and the decision-making process. In
contrast, TCA systems failed to provide cost precision for strategic decision-
making.

Finally, the study found that integrating ABC within ERP affects the whole
organization, enhances all processes and functions of a firm, and maximizes
the efficiency of business operations while improving management practices
and eliminating non-value-added activities for strategic planning and decision
making, improving cost management of organizations.

7. Suggestions for Future Research

Future research may use different methodological approaches, both
quantitative and qualitative to further explore this topic. On the one hand,
largescale survey questionnaires may allow for large samples of observations
in assessing the diffusion stage of ABC within the ERP environment. In this
regard, survey questionnaires allow for the measurement of existing levels of
ERP knowledge and awareness in ABC costing. On the other hand, qualitative
single or multiple case studies may provide in-depth insights into how the ABC
accounting system is adapting to the ERP environment and improve
management performance.

171
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

References

[1] L. Mia and R. Chenhall, "The usefulness of management accounting systems, functional
differentiation and managerial effectiveness," Accounting, Organizations and Society,
vol. 19, no. 1, pp. 1-13, 1994.

[2] R. Cooper, "The rise of activity-based costing -part two: When do I need an activity-
based costing system?," Journal of Cost Management, pp. 41-48, 1988b.

[3] C. D. Ittner, Lanen W.N. and D. Larcker, "The Association between Activity-Based
Costing and Manufacturing Performance," Journal of Accounting Research, vol. 40, no.
3, pp. 711-726, 2002.

[4] D. Taylor, "Demand amplification: has it got us beat?," International Journal of Physical
Distribution & Logistics Management, 2000.

[5] S. G. Abd Allah, "A Suggested Framework for the Integration of Activity-Based Costing
(ABC) in a Lean Environment to Enhance Companies Competitive Position," A Case
Study in Egypt. SSRN Journal, 2011.

[6] P. Kongchan, "Factors Influencing the Implementation of Activity- Based Costing in Thai
Companies," Doctoral Dissertation, RMIT University, 2013.

[7] H. Nachtmann and K. Needy, "Methods for handling uncertainty in activity based
costing systems," The Engineering Economist, vol. 48, no. 3, pp. 259-282, 2003.

[8] T. Ahmadzadeh, H. Etemadi and A. Pifeh, "Exploration of factors influencing on choice

of the activity-based costing system in Iranian organizations," vol. 2, no. 1, p. 61–70,
2011.

[9] C. Marx, "Activity Based Costing (ABC) And Traditional Costing Systems, [Online],"
Available:[Link]
[Link] (November 15, 2015), 2009.

[10] R. Cooper, "Does Your Company Need a New Cost System?," Journal of Cost
Management, Spring, pp. 45-90, 1987.

[11] M. Shields, "The benefits of activity-based cost management to the manufacturing

industry," Journal of Management Accounting Research, vol. 7, pp. 148-166, 1995.

[12] R. Cooper, "Does Your Company Need a New Cost System?," Journal of Cost
Management, Spring, pp. 45-90, 1987.

[13] R. Cooper and R. Kaplan, "How Cost Accounting Distorts Product Costs," Management
Accounting, vol. 29, no. 10, p. 20, 1988.

[14] H. Johnson and R. Kaplan, "Relevance lost: the rise and fall of management
accounting," Harvard Business Press, 1987.

172
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

[15] K. R. Krumwiede, Wing G. and J. R, "Reaping the Promise of Enterprise Resource

Systems," Strategic Finance (October), pp. 49-52, 2000.

[16] S. Baxendale and F. Jama, "What ERP can offer ABC," vol. 8, no. 1, pp. 51-54, 2003.

[17] L. Ansheng, "Activity-Based Costing (ABC) and Its Application in ERP," 2011.

[18] G. Cokins, "Activity-based cost management: an executive’s guide," New York: John
Wiley & Sons, Inc, 2001.

[19] A. Gunasekaran and D. Singh, "Design of activity-based costing in a small company: a

case study," Computers and Industrial Engineering, vol. 37, pp. 413-416, 1999.

[20] D. Harr, "Activity-based costing: new insights for cost management," Armed Forces
Comptroller, vol. 36, no. 33, 1991.

[21] W. E. Back, D. A. Maxwell and L. Isidore, "Activity-Based Costing as a Tool for Process
Improvement Evaluations," Journal of Management in Engineering, vol. 16, no. 2, pp.
48-58, 2000.

[22] R. W. Hilton, Maher M.W. and E. F.H., "Cost Management: Strategies for Business
Decisions," The McGraw-Hill Companies, Inc, 2000.

[23] C. Drury, "Management and cost accounting, student manual," 8th ed. North Way:
Cengage Learning, 2012.

[24] R. Kaplan, "One Cost System Isn’t Enough," Harvard Business Review, pp. 61-66, 1988.

[25] R. Garrison and E. Noreen, "Managerial Accounting," McGraw- Hill/Irwin, New York,
2006.

[26] H. Johnson and R. Kaplan, "The Importance of Long-Term Product Costs," Mckinsey
Quarterly, pp. Autumn: 36-48, 1998.

[27] A. Atkinson, R. Kaplan, Matsumura E. and Y. M., "Management Accounting:

Information for Decision Making and Strategy Execution, 6th Edition," United States,
Pearson Education Ltd, 2012.

[28] N. Petcharat and J. Mula, "Towards a conceptual design for environmental and social
cost identification and measurement system," Journal of Financial Report and
Accounting, vol. 1, no. 1, pp. 34-54, 2012.

[29] A. Moisello, "Cost Measurement and Cost Management in Target Costing," Annals of
Faculty of Economics, vol. 1, no. 1, pp. 533-547, 2012.

[30] K. Sartorius, C. Eitzen and P. Kamala, "The design and implementation of Activity Based
Costing (ABC): a South African survey," Meditari Accountancy Research, vol. 15, no. 2,
pp. 1-21, 2007.

[31] O. Pavlatos and P. I., "Activity-Based Costing in the Hospitality Industry: Evidence from
Greece," Journal of Hospitality & Tourism Research, vol. 33, no. 4, pp. 511-527, 2009.

173
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

[32] D. Askarany and S. M., "Diffusion of innovation and business size: a longitudinal study
of PACIA," Managerial Auditing Journal, vol. 23, no. 9, pp. 900-916, 2008.

[33] C. Drury and T. M., "Issues arising from surveys of management accounting
practice, Management Accounting Research," Management Accounting Research, vol.
6, no. 3, pp. 267-280, 1995.

[34] M. Ishter and A. H, "Activity-Based Costing (ABC) – An Effective Tool for Better
Management," Research Journal of Finance and Accounting ISSN 2222-1697 (Paper)
ISSN 2222-2847 (Online), vol. 6, no. 4, 2015.

[35] S. Cohen, G. Venieris and E. Kaimenaki, "ABC: adopters, supporters, deniers and
unawares," Managerial Auditing Journal, vol. 20, no. 9, pp. 981-1000, 2005.

[36] J. Innes, F. Mitchell and D. Sinclair, "Ativity-based costing in the U.K.’s largest
companies: a comparison of 1994 and 1999 survey results," Management Accounting
Research, vol. 11, no. 3, pp. 349-362, 2000.

[37] W. Chongruksut, "The Adoption of activity-based costing in Thailand," Victoria

University, Thailand, 2002.

[38] R. Cooper and Kaplan R., "Activity-Based Systems: Measuring the Costs of Resource
Usage," Accounting Horizons, vol. 6, no. 93, p. 1, 1992.

[39] K. Krumwiede, "The Implementation Stages of Activity-Based Costing and the Impact of
Contextual and Organizational Factors," Journal of Management Accounting, vol. 10,
pp. 239-277, 1998.

[40] A. Sohal and C. W.W., "Activity based costing in manufacturing: two case studies on
implementation," Integrated Mfg Systems, vol. 9, no. 3, pp. 137-147, 1998.

[41] P. Clarke and T. Mullins, "Activity Based Costing In The Non- Manufacturing Sector In
Ireland: A Preliminary Investigation," Irish. J. Manage, vol. 22, no. 1, p. 1, 2001.

[42] I. Cobb, Innes J. and F. Mitchell, "Activity Based Costing: Problems and Practice,"
Chartered Institute of Management Accountants, 1992.

[43] B. Pierce and R. Brown, "An empirical study of activity-based systems in Ireland," The
Irish Accounting Review, vol. 11, pp. 33-55, 2004.

[44] L. Chung, H. Schoch and H. Teoh, "Activity based costing in Singapore: A synthesis of
evidence and evaluation," Accounting Research Journal, vol. 10, no. 2, p. 125–141,
1997.

[45] T. Malmi, "Towards explaining activity-based costing failure: accounting and control in
a decentralized organization," Management Accounting Research, vol. 8, no. 4, pp.
459-480, 1997.

[46] J. Innes and F. Mitchell, "The process of change in management accounting: some field
study evidence," Management Accounting Research, vol. 1, no. 1, pp. 3-19, 1990.

174
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

[47] J. Innes and F. Mitchell, "A survey of activity-based costing in the U.K.’s largest
companies," Management Accounting Research, vol. 6, no. 2, pp. 137-153, 1995.

[48] J. Innes and F. Mitchell, "A Survey of CIMA members, Management Accounting (UK),"
Management Accounting (UK), vol. 6, no. 9, pp. 28-30, 1991.

[49] D. Brown, P. Booth and F. Giacobbe, "Technological and organizational influences on

the adoption of activity-based costing in Australia," Accounting & Finance, vol. 44, no.
3, pp. 329-356, 2004.

[50] T. Groot, "Activity-Based Costing in US and Dutch Food Companies," Advances in

Management Accounting, vol. 7, pp. 47-64, 1999.

[51] V. Saxena and C. Vashist, "Advanced Management Accounting," New Delhi. Sultan
Chand & Sons, 2010.

[52] L. Jawahar, Cost Accounting, New Delhi: Tata Mcgaw-Hill Publishing, 2009.

[53] T. Bjornenak, "Diffusion and Accounting: The Case of ABC in Norway," Management
Accounting Research, vol. 8, pp. 3-17, 1997.

[54] P. Turney, "Using activity-based costing to achieve manufacturing excellence," Cost

Management, pp. 23-31, 1989.

[55] J. Dubihlela and R. Rundora, "Employee Training, Managerial Commitment and The
Implementation Of Activity Based Costing; Impact On Performance Of SMEs," IBER, vol.
13, no. 1, p. 27, 2014.

[56] C. D. Ittner, Lanen W.N. and D. Larcker, "The Association between Activity-Based
Costing and Manufacturing Performance," Journal of Accounting Research, vol. 3, no.
711-726, p. 40, 2002.

[57] J. Abdul Majid and M. Sulaiman, "Implementation of activity based costing in Malaysia:
A case study of two companies," Asian Review of Accounting, vol. 16, no. 1, pp. 39-55,
2008.

[58] D. Cagwin and Bouwman M.J., "The association between activity-based costing and
improvement in financial performance," vol. 13, no. 1, pp. 1-39, 2002.

[59] W. Stratton, D. Desroches, R. Lawson and T. Hatch, "Activity-based costing: is it still

relevant?," Management Accounting Quarterly, vol. 10, no. 31, 2009.

[60] E. Blocher, D. Stout, Juras P. and G. Cokins, Cost management: a strategic emphasis,
(6th ed), New York, NY: McGraw-Hill Irwin, 2013.

[61] A. Gunasekaran and M. Sarhadi, "Implementation of activity-based costing in

manufacturing," International Journal of Production Economics, vol. 56, no. 57, pp.
231-242, 1998.

[62] K. Berts and S. Kock, "Implementation considerations for activity based costing in
service firms," Management Decisions , vol. 33, pp. 57-63, 1995.

175
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

[63] C. Berliner and J. Brimson, "Cost Management for Today's Advanced," pp. The CAM-I
Conceptual Design, Harvard Business School, 1989.

[64] N. Stefano and N. Casarotto Filho, "Activity-based costing in services: literature

bibliometric review," SpringerPlus, vol. 2, no. 1, 2013.

[65] A. Gunasekaran, "A framework for the design and audit of an activity‐based costing
system," Managerial Auditing Journal, vol. 14, no. 3, pp. 118-127, 1999.

[66] J. W. Wilson and S. Eilertsen, "How did strategic planning help during the economic
crisis?," Strategy & Leadership, vol. 38, no. 2, pp. 5-14, 2010.

[67] D. Hicks, "Activity-based costing: making it work for small and mid-sized companies,"
New York: John Wiley and Sons 25, 2002.

[68] C. Lombardo, "Activity based costing advantage and disadvantages," 2015.

[69] M. Al‐Mashari and A. Al‐Mudimigh, "ERP implementation: lessons from a case study,"
vol. 1, pp. 21-33, 2003.

[70] T. Davenport, "Putting the enterprise into the enterprise system," Harvard business
review, vol. 76, no. 4, 1998.

[71] I. Ehie and M. Madsen, "Identifying critical issues in enterprise resource planning (ERP)
implementation," Computers in Industry, vol. 56, no. 6, pp. 545-557, 2005.

[72] K. Laframboise and R. F., "Gaining Competitive Advantage from Integrating Enterprise
Resource Planning and Total Quality Management," Journal Supply Chain
Management, vol. 41, no. 3, pp. 49-64, 2005.

[73] R. Malhotra and T. C., "Critical decisions for ERP integration: Small business issues,"
International Journal of Information Management, vol. 30, no. 1, pp. 28-37, 2010.

[74] R. Shaw, "ABC and ERP: Partners at Last?," Management Accounting, pp. 80-91, 1998.

[75] J. Kim, "Activity-based framework for cost savings through the implementation of an
ERP system," International Journal of Production Research, vol. 47, no. 7, pp. 1913-
1929, 2009.

[76] C. Xihui and Y. Zhenwei, " Applied research of activity-based costing under ERP
environment," 13th International Conference on Service Systems and Service
Management, 2016.

[77] A. Vazakidis, I. Karagiannis and A. Tsialta, "Activity-Based Costing in the Public Sector,"
Journal of Social Sciences, vol. 6, no. 3, pp. 376-382, 2010.

[78] L. Huijuan, L. Yuqian and Z. Guoping, "Demonstration the application of activity-based

costing to ERP management system," Information Technology and Artificial Intelligence
Conference (ITAIC), 2011 6th IEEE Joint International, vol. 1, pp. 264-265, 2011.

176
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

[79] H. Johnson, "Beyond product costing: A challenge to cost management’s conventional

wisdom," Journal of Cost Management, vol. 4, pp. 15-21, 1990.

[80] R. Cooper and R. Kaplan, "Measure costs right: Make the right decisions," Harvard
Business Review, vol. 5, no. 65, pp. 96-103, 1998a.

[81] D. Askarany, Yazdifar H. and A. S., "Supply chain management, activity-based costing
and organisational factors," International Journal of Production Economics, vol. 127,
no. 2, pp. 238-248, 2010.

[82] M. Gosselin, "The effect of strategy and organizational structure on the adoption and
implementation of activity-based costing," Accounting, Organizations and Society, vol.
22, no. 2, pp. 105-122, 1997.

[83] N. Ahmed, "Implementing the system of costs based on activity in the banking sector
an applied study: Rashedbank, atteffhaa branch," AL-Anbar University Journal of
Economic and Administration Sciences, vol. 4, no. 9, pp. 326-344, 2012.

[84] P. Booth and G. F., "The Impact of Demand and Supply Factors in the Diffusion of
Accounting Innovations: The Adoption of Activity-Based Costing in Australian
Manufacturing Firms," The Sixth Biennial Management Accounting Research
Conference, University of NSW, Sydney, 1998.

[85] A. Almeida and J. Cunha, "The implementation of an Activity-Based Costing (ABC)

system in a manufacturing company," Procedia Manufacturing, vol. 13, pp. 932-939,
2017.

[86] Y. p. Ruan and Z. L., "The Research on Management Accounting Tools—Based on the
Comparison Between Activity-based Costing and Traditional Costing, dtetr , (amsm).,"
2017.

[87] A. &. P. D. Bhimani, "Implementing ABC: a case study of organizational and behavioural
consequences," Management Accounting Research, vol. 3, no. 2, pp. 119-132, 1992.

[88] K. Krumwiede and H. Roth, "Implementing information technology innovations: the

activity-based costing example," Management Journal, vol. 62, no. 4, pp. 4-13, 1997.

[89] A. E. Haroun, "Maintenance cost estimation: application of activity-based costing as a

fair estimate method," Journal of Qual. in Maintenance Eng, vol. 21, no. 3, pp. 258-270,
2015.

[90] S. Wen and N. Lu, "Management accounting tools and application case - Activity based
costing and its application in high-tech enterprises," Friends of Accounting, vol. 10, pp.
133-136, 2016.

[91] A. Maiga and J. F.A., "Balanced scorecard, activity-based costing and company
performance: An empirical analysis," Journal of Managerial Issues, vol. 15, no. 283,
2003.

177
Technium Vol. 2, Issue 7 pp.160-178 (2020)
ISSN: 2668-778X
[Link]

[92] D. Swenson, "Are you satisfied with your cost management system?," Management
Accounting (UK), , vol. 77, no. 49, 1996.

[93] K. Alsaeed, "Activity-Based Costing in Saudi Arabia’s Largest 100 Firms in 2003," The
Journal of American Academy of Business, vol. 2, pp. 285-292, 2005.

178