Flexibility In Manufacturing And Activity Based Costing: Modelling The Interrelationships

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George Venieris
Sandra Cohen



Theory claims that ABC is most suitable for companies employing flexibility in manufacturing, as it is a vehicle for more accurately depicting cost causation when the level of overheads increases. Furthermore, the benefits of flexibility in production can only be visible when sophisticated cost accounting systems, such as ABC, are implemented. However, previous empirical studies have shown that this is not always the case. In this paper we develop a model, which proposes whether ABC implementation should be recommended by combining several attributes that, according to theory and previous empirical findings, characterize sophisticated cost accounting systems and flexibility in production. This model can be used to assist companies to assess the suitability and applicability of ABC, under their own specific business conditions regarding production flexibility. In order to evaluate the reliability of the model we have empirically tested it to a sample of leading Greek manufacturing firms. The model developed succeeded in identifying, at a statistically significant level, the perceptions of managers about the suitability of ABC for their companies. It also revealed that production flexibility is a significant factor driving companies towards ABC adoption.


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