Tài liệu The impact of abc (activity based costing) on manufacturing firm performance in vietnam

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DECLARATION I hereby declare that the graduation project is based on my original work except for quotations and citations which have been duly acknowledged. I also declare that it has not been previously or concurrently submitted for any other course/degree at HELP University College or other institutions. The word count is about 10,500 words NGUYEN THI HA Date: 30/6/2010 1 ACKNOWLEDGEMENTS Firstly, I want to send my thankfulness to my advisor Dr. Le Van Lien for his continuous support in my thesis. The advices of Dr. Lien helped me so much in the accurate thesis structure, also the method to simplify the result. He taught me as how to offer the right questions and express my ideas. I also want to send my thankfulness to Ms Sumathi who guided me how to use the statistic method, step by step to do this research enthusiastically. Secondly, I want to thank to the sources such as a large amount of manufacturing firms that provide a lots of necessary information from responding mail to me. The data is really significant for my result finding, integrated with some statistic methods, from that I could offer my conclusion effectively. Thirdly, I also want to thank to the internet sources such as prior researches that really helped me in how to find the result, hypothesis setting, questionnaires making. I also want to thank to the sources, other researchers that provide the conceptual theories that contributed to my literature review chapter. In finally, I want to send my thankfulness to my friends, my family who has supported, encouraged and motivated me in doing this thesis. 2 THE IMPACT OF ABC (ACTIVITY BASED COSTING) ON MANUFACTURING FIRM PERFORMANCE IN VIETNAM BY NGUYEN THI HA June 2010 Supervisor: Dr. Le Van Lien Abstract In this study, Based on the data from a large sample amount of Vietnam manufacturing plants and some research models, I want to demonstrate the impact of Activity-based costing (ABC) on manufacturing performance, especially is the plant performance regarded as operational performance rather than financial performance, is directly by the World-class manufacturing (WCM) practices adoption. From the result of sample research, I can conclude that ABC has no significant or very little direct effect on performance of plant that is represented by the improvement of manufacturing cost, cycle time and the quality of product. However, WCM present as a mediator that helps to explore the impact of ABC on plant performance clearly. By using results and methods of many other researchers, I evaluate the relationship between ABC implementation, WCM adoption and plant performance. From this evaluation, I can see that ABC can’t improve performance of plant by itself, and one of the ways to see overall impact of ABC is the implementation of WCM. 3 TABLE OF CONTENTS Page Declaration of Originality and word count i Acknowledgements ii Abstract iii Table of Content iv List of Figures vii List of Tables viii List of Abbreviations ix Chapter I INTRODUCTION 1.1 Introduction 2 1.2 Need for Research 4 1.3 Elements of the Research 4 1.3.1 Research Question 4 1.3.2 Research Objective 4 1.4 Scope of Research 5 1.5 Assumptions 6 1.6 Plan of Presentation 6 Chapter II LITERATURE REVIEW 2.1 A General Look at ABC 8 2.1.1 The conceptualization of ABC 12 2.1.2 The importance of ABC 14 2.2 The ABC criticism 16 4 2.3 The fundamental of World-Class Manufacturing (WCM) practices 17 2.4 The relationship and the impact of ABC implementation & WCM practices 18 on plant performance Chapter III RESEARCH METHODOLOGY 3.1 Research objective 21 3.2 Research strategy 21 3.3 Research hypothesis 22 3.3.1 Impact of Activity-based Costing on World-class Manufacturing 23 3.3.2 Impact of World-class Manufacturing on Plant Performance 26 3.3.3 Impact of ABC on Plant Performance: A Mediation Mechanism 28 3.4 Measurement of variables 30 3.4.1 Dependent variables (Plant performance) 30 3.4.2 Independent variables 31 3.4.2.1 Activity Based Costing (ABC) implementation 31 3.4.2.2 World-Class Manufacturing practices (WCM) implementation 35 3.4.2.3 Plant-level control variables 35 3.5 Research methodology 36 3.6 Data sources and sampling 37 3.6.1 Sample selection 37 3.6.2 Data collection method 37 3.7 Limitation of research 38 Chapter IV ANALYSIS 4.1 Results Analysis 41 5 4.1.1 Percentage method 41 4.1.2 Results analysis for Hypothesis 1 to 3 46 4.1.2.1 Impact of Activity-based Costing on World-class Manufacturing 46 4.1.2.2 Impact of World-class Manufacturing on Plant Performance 47 4.1.2.3 Impact of ABC on Plant Performance: A Mediation 50 4.2 Discussion Mechanism 51 Chapter V CONCLUSION 5.1 Implication of research 53 5.2 Conclusion 53 References 55 Appendixes 63 6 LIST OF FIGURES Figure Title Chapter 1 N/A N/A Chapter 2 Figure 2.1 Figure 2.2 Page The Estimation of Activity Based Costing (ABC) The proportion of material, direct labor and overhead costs in today’s world The proportion of material, direct labor and overhead costs where traditional cost systems focus their attention 12 15 Chapter 3 Figure 3.1 Conceptual research model 23 Chapter 4 N/A N/A Chapter 5 N/A N/A Figure 2.3 15 7 LIST OF TABLES Table Title Page Chapter 1 N/A N/A Chapter 2 Table 2.1 The Changes in Manufacturing Environment 14 Chapter 3 Table 3.1 Questionnaires’ result 32 Chapter 4 Table 4.1 Table 4.2 Table 4.3 Table 4.4 The impact of ABC (percentage based) The descriptive statistic result The WCM implementation Impact of WCM and ABC on Plant Performance 42 45 46 49 Chapter 5 N/A N/A 8 LIST OF ABBREVIATIONS Abbreviation Full Name VBC Volume Based Costing ABC Activities Based Costing WCM World-class Manufacturing Practices TQM Total Quality Management JIT Just-in-time Manufacturing AMP Advanced Manufacturing Practices 9 CHAPTER I: INTRODUCTION 1.1 Introduction 1.2 Need for Research 1.3 Elements of the Research 1.4 Scope of Research 1.5 Assumptions 1.6 Plan of Presentation 10 1.1 Introduction Along with the development of market economy, accounting information requires precise, more detailed and updated. Previously, manufacturing companies only use traditional cost allocation methods as VBC (Volume Based Costing) but until now, this allocation method is gradually being replaced by activity based costing method ABC (Activities Based Costing). The reason is that in according to the VBC method, the distribution of overall production costs in manufacturing costs - cost factories are usually allocated to each product based on a fixed allocation criteria (usually direct labor hours). The allocation of all common expenses according to such fixed criteria is unsuitable because general expenses include many items that have different nature in the production process makes the actual cost of the product reflected not accurately lead to the false business decisions making. But according to the ABC method, common expenses are allocated based on cost’s factors so we can see that ABC method can provides accurate cost information and a more sensible approach than the traditional cost accounting. In according to Cooper and Kaplan, accurate cost data is provided by ABC adoption that is useful in the strategic decisions making of business process performance. This accurate cost data also useful in product mix, sourcing, pricing, process improvement, and evaluation processes (Cooper and Kaplan, 1992; Swenson, 1995). This paper examines the impact of ABC on plant level operational. Using the Vietnam manufacturing plants sample, we find that ABC use is indirectly impact on manufacturing performance through the advanced manufacturing practice implementation. Based on the paper the Association between Activity-Based Costing 11 and Manufacturing Performance in the Journal of Accounting Research Vol. 40 No. 3 June 2002 Printed in U.S.A is written by Christopher D. Ittner, William N. Lanen and David F. that said: Plants with higher quality levels and better cycle time improvements will be associated more with extensive use of ABC, although there is not association of ABC with the reduction of manufacturing cost but the association can be directly occurred by the improvement of quality and cycle time. In addition, in the financial performance, there is no association between ABC use and return on assets. Furthermore, the finding showed that there is a little evidence that the operational characteristics of plant are important factors that will be contingent with the association of ABC use and accounting profitability. That reading also showed that from the ROA results, we can see the association between ABC use and net financial benefits is varies with the characteristics of plant’s operational. Especially, ABC may be more beneficial for performance if it adopts and implements advanced manufacturing practices (Shields and Young [1989], Kaplan [1992], Cooper [1994]). Base on that point, perceptual measures of ABC success is used by prior studies such as find whether the relationship between the adoption of advanced manufacturing practices and the success of ABC implementation is positive (see Anderson and Young [1999] for a review). Because ABC has a little direct impact on plant manufacturing performance, base on prior research’s analysis methods, I do a research in a cross-sectional sample of Vietnam manufacturing firms to survey the indirect impact of ABC on manufacturing performance through the adopt of WCM practices . 12 1.2 Need for research Today, the competitive world of business is so high, with using ABC method in manufacturing performance, many firms have provided accurate information that is to determine the optimal product mix so that management can make better decisions and the result is to have company’s effectiveness. However, in fact, in Vietnam, not all firms success with this method. The reason why is that businesses do not want to renew method and try to get the traditional cost accounting, or do not want to change because they have no understanding of this new method, but the main reason is that the lack of advanced manufacturing practice. This research’s purpose is to provide the better information to managers that can help them to understand the overall the positive indirect impact of ABC on manufacturing plant performance through the WCM practices implementation. 1.3 Elements of the research 1.3.1 Research question What is the overall direct and indirect impact of ABC on manufacturing firm performance? And can WCM mediate the impact of ABC on plant performance by the performance improvement? 1.3.2 Research objective Prior studies have almost concentrates on the direct impact of ABC and almost them, they has only little care about how to increase other organizational capabilities by indirect impact of ABC implementation. Prior researcher showed the ABC implementation’s benefits (Foster and Swenson, 1997; Ittner and Larcker, 2001), in 13 evaluating the successful outcomes and the plant performance measures, one of them have explored the research. Moreover, ABC success’s definition has often been regarded as “benefits of financial”, “ABC satisfaction”, or “decision making by the use of ABC.” From these definition and the sources of methodology, I bring out the measure approach that is needed evaluate the impact of ABC. Beside of firm-level financial metrics focus, It is also significant to concentrate on the measurement of process-level performance, since before firm’s aggregate performance reflect ABC implementation, the potential impact may be appropriated. In this thesis, I mainly concentrate in the point that will show the ABC’s impact on plant performance through the enabler of organizational capacity. Particularly, in this research, the positive relationship between implementation of ABC and WCM practices and the impact of them on plant-level operational performance will be investigated. 1.4 Scope of research In this research, I will develop framework which indicates the WCM capacity enablement will be mediated factor to show the ABC adoption impact on plant performance is positive. Since ABC is adopted at the business process level, I concentrate mainly on the measure of operational process performance and the manufacturing plant is treated as a unit of analysis. In addition, prior studies showed the of ABC’s impact traditionally so the revision and validation of those prior studies are needed by using many types of model and approaches. In difference with Ittner et al. (2002) my result is that, on plant performance, ABC has a statistically indirect impact 14 that is showed by the mediation, advanced manufacturing capabilities is represented as WCM. 1.5 Assumptions I suppose that ABC implementation by itself is unable to provide the direct valuable impactions, but will be enable to create the convenient condition for the advanced manufacturing practices implementation and other capabilities, as the result, this capacities may contribute into plant performance improvements. Previous studies that have tried to explored the direct impact of ABC but almost, they have to conclude that the organization needs the improvement. 1.6 Plan of presentation My research is organized in five chapters. In chapter II, the literature will be reviewed on the fundamental of ABC, the conceptualization of ABC, advanced manufacturing practices, their relationship and their impact in according to the prior research. Then, in chapter III, I present methodology that shows the description of my research data, hypothesis, variables’ measurement and limitations. Next, in chapter IV, I analyze results of the statistical estimation, and a discussion. Finally, in chapter V, I summarize my findings and the study implications for future research. 15 CHAPTER II: LITERATURE REVIEW 2.1 A General Look at ABC 2.2 The ABC criticism 2.3 The fundamental of World-Class Manufacturing (WCM) practices 2.4 The relationship and the impact of ABC implementation & WCM practices on plant performance 16 2.1 A general look at ABC ABC is method that replaced traditional costing method. Previous period, everybody still think that customers purchase a large volume of products, the loyal customers will bring the high profitability. The customer profitability researches disclosed that those above judges are not really correct. ABC method determines all activities expenses, then delivery those expenses in according to products and services base on activity amount or occurred transactions in the providing process of products or services. Hence, ABC method can help managers to have the optimal investment value of shareholders and increase the effectiveness of company’s activities. The costing methods based on counting on indirect expenses. The benefits of ABC method can be mentioned as: Determine customers, products, delivery channel that create the most profit and least profit. Determine factors that make increase or decrease financial activity’s efficiency. Forecast exactly the original causes of the financial activity’s bad effectiveness. Keep track of activity expenses and operational processes. Equip for managers reporting data of the valuable expenses for operational improvement. Support management and adjust marketing combination. Increase the ability of customer negotiating. Locate products better. With ABC method, the service expenses can be determined definitely. After minus the product expenses and services expenses for each customer, the customer profitability will be calculated. The ABC method calculates customer expenses and help to locate correlative products or services. In addition, ABC application can help staff to grasp all related expenses, help them to analyze the expenses and specify the plus value and no 17 plus value activities, from that, improve effectively activities. This is a complete process continuously starting from the cost analysis, to reduce the activities that do not create added value and thus achieve the overall performance effectiveness. Moreover, ABC also helps companies create better products that meet the needs of the market with a cost competitive. Analysis of profitability by product and customer profitability, this approach has contributed positively to the decision making process of grant management; company can improve efficiency and reduce operating costs without sacrifice to bring value to customers. Many companies also use the ABC method in the implementation of the card balance (balanced scorecard). ABC method helps companies model the impact of cost cutting and cost control savings. Overall, ABC is a dynamic method to promote continual improvement. With ABC, any company can create competitive advantage on costs and continuously create value for shareholders and customers. In addition, also talk about the benefits of ABC, prior studies found and affirmed that: ABC is defined as a separately task that can help to ensure the product or service delivering, cost drivers using and assign the cost of activity to products or services that relate to these activities (Cooper, 1988; Ittner et al. 2002). Base on direct labor, machine hours, traditional costing system use them to allocate expenses that combined with the indirect activity to product and services. However, ABC distinguishes the indirect expenses and resources supporting by activities, and to assign the expense, the drivers of those activities are important factor (Cooper and Kaplan, 1991). Hence, a more structured approach of ABC adoption result provide to plant mangers for expenses evaluating that is associated with particular activities used in product supporting. 18 From the prior research, they affirmed that the impact of ABC has produced a lot of evidences. Firstly, ABC is argued as to help economics capturing of production process that is more accurately than traditional costing system, and accurate costing data also has provide more (Cooper and Kaplan, 1991; Ittner, 1999). Secondly, prior research also said that the implementation of ABC brings out more benefits for organization’s operation. (Anderson and Young, 1999; Cooper and Kaplan, 1991). In addition to, researchers also showed that the benefits achieved of ABC implementation are from the improvement of production processes, causal cost driver, the better product development’s information, sourcing, product mix and other strategic decisions (Anderson, 1995; Shields, 1995). As refer to the benefits of ABC implementation, literature showed three potential types of benefit that help to improve operational performance: cost lowering, quality improvement, and manufacturing cycle time reducing (e.g., Anderson and Young [1999]; Ostrenga et al. [1992]). In addition to, in refer to the cost associated with the value-added and non value-added activities, ABC advocates (e.g., Cooper and Kaplan [1991, chapter 5]; Ostrenga et al. [1992]; Carolfi [1996]) showed that detailed information on the drivers of activity costs is provided by activity-based costing systems. This information help managers in costs reducing by designing products and processes that consume fewer activity resources that can also increase the efficiency of existing activities, the non valued added activities id eliminated to customers, and from that, the coordination of customers and suppliers is improved. 19 In relation to the similar conclusion about the benefit of ABC in cost reducing to non value added activities, Carolfi also said that since ABC provide better business processes visibility and the cost drivers, it might help managers to reduce and eliminate cost of activities that related to non value added and from that, the efficiencies of existing process are improved (Carolfi, 1996). Moreover, from the information visibility improvement, it may also support the quality-related initiatives deployment by realize the activities that combined with poor product quality, and their cost drivers (Ittner, 1999, Cooper et al. 1992). Hence, prior researchers suggest that in the activities process improvement such as total quality management (TQM) programs, ABC adoption will have the valuable association (Ittner and Larcker, 1997a, 1997b; Anderson, Hesford, and Young, 2002). 20
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