The Portable MBA in Finance and Accounting, 4th Edition

13

Activity-Based Costing

William C. Lawler

 

 

 

Leaving government agencies and not-for-profit organizations aside, the accounting profession can be divided into two camps, financial and managerial. Each has an important role in creating an economic environment where commerce can thrive. The former has the responsibility of developing and reporting financial information for external users such as current and potential investors to aid in the macroeconomic process of efficient allocation of capital. The latter, the managerial camp, has the task of providing information to internal managers to aid in their quest to create investor return, a more microeconomic process focused on providing relevant and timely cost information to drive optimized performance. This chapter focuses on the challenge of how one builds such a relevant management accounting system.

In 1987 Harvard Business School Press published an interesting research study on U.S. economic history by H. Thomas Johnson and Robert S. Kaplan entitled Relevance Lost: The Rise and Fall of Management Accounting. Johnson and Kaplan found that in the late 1800s through the early 1900s, as a result of work by business analysts such as Frederick Taylor, Alexander Church, and J. Maurice Clark, leading U.S. firms developed relatively sophisticated management accounting systems that were instrumental in the overall emergence of the post-industrial revolution American manufacturing sector. Carnegie Steel, both Ford and General Motors, ...