Designing an activity-based costing system for a specialty retail store
1University of Oulu, Oulu Business School, Department of Accounting, Accounting
|Online Access:||PDF Full Text (PDF, 1 MB)|
|Persistent link:|| http://urn.fi/URN:NBN:fi:oulu-201404241300
|Publish Date:|| 2014-04-28
|Thesis type:||Master's thesis
This study designs an activity-based costing (ABC) system for a retail store specializing in one single product line and examines the suitability of ABC for such a context. This is of interest since traditionally ABC has been believed to have high-potential applications in business contexts where product diversity is high. The underlying assumption is that when product diversity is low, traditional costing systems manage to allocate costs accurately.
A prescription glasses retailer serves as a research site for this study. Eyeglasses retailers have been considered in prior research to best represent businesses that offer one single type of goods. A contingency framework is used to preliminary assess the suitability of ABC for the studied company. Then an activity-based costing system is designed for the firm using a step-by-step approach. At the end ABC product costing is compared to current product costing obtained from traditional methods to compare and analyze the differences.
The study finds that the existing traditional costing system produces inaccurate product costs despite the low product diversity in the company. ABC information proves to be more accurate and more useful for customer profitability analysis, and decision-making in product pricing and capacity planning.
These results entail that the relation between product-diversity and ABC adaption should be revisited. This case study might give useful insights on contingent factors that have a higher enabling potential for ABC compared to product diversity, such as cost structure.
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