Statistical analysis of suitability of the activity based costing method in agricultural enterprises
Purpose. The paper focuses on comparing two cost calculation method describing the principle, utilisation, advantages and disadvantages of the traditional mark-up on cost pricing (overhead method) against Activity Based Costing (ABC), a new, unconventional method of cost calculation. The aim is to prove that the ABC method allocates costs differently to individual products, in a different proportion thereto, unlike the mark-up method. The ABC method is considered by us more accurate because it views differently how costs originate.
Methodology / approach. Statistical data testing was carried out, using the Kolmogorov-Smirnov and Shapiro-Wilk W tests, followed by a paired t-test, and completed with the Wilcoxon signed-ranks test. The data was evaluated for eight selected products, whose overhead value was calculated from both marking-up and ABC, out of a selected set of primary agricultural enterprises in Slovakia. Finally, the results were assessed with an unproven statistically significant difference between the calculation methods found.
Results. This paper emphasises a different view of costing with the ABC method which, unlike conventional methods, offers multidimensionality and variation of cost tracking based on real and relevant data. A statistically significant difference between the methods was demonstrated for three pairs of variables (out of a total eight pairs). Statistically significant differences were found for cattle, wheat and sugar beets. Although statistical testing has not shown any significant difference between the methods, ABC is still considered a more accurate costing method for allocating overhead. The argument here follows from the very principle and method of ABC allocation of overheads. Unlike traditional methods, ABC offers multidimensional and diverse cost tracking based on real and relevant data. The direct allocation of costs (using an equal budget base) to products and services does not necessarily capture actual cost flows. Because overheads are higher on farms, misleading data can be provided. Practical experience in agriculture seems to imply that the ABC method is the most cost-effective tool for cost control and encourages its further use in budgeting, planning, modelling and decision-making.
Originality / scientific novelty. The paper focuses on cost calculations made in agricultural holdings, often a neglected topic in agricultural management. In particular, high overhead costs in agriculture deserve more attention. Their exact allocation to products is important. The paper also focuses on assessing the suitability of calculation methods in agricultural holdings and on pointing out the need for accurate cost allocation.
Practical value / implications. The main results and ideas here can be beneficial for managing agricultural holdings. Where the proportion of overheads is higher, management may be provided with misleading data. Practical experience shows the ABC method to be currently the most cost-effective tool for controlling costs and provides opportunities for its use in budgeting, planning, modelling and decision-making on product range structure, alongside other options.
Alcouffe, S., Maurice, J., Galy, N. and Gate, L. (2019), Is the limited diffusion of management accounting innovations really a paradox? A meta-analysis of the relationship between product diversity and the adoption of activity-based costing. Comptabilite Controle Audit, vol. 25, is. 1, pp. 133–164. https://doi.org/10.3917/cca.251.0133.
Al-Eidan, D., Al-Ahmad, M., Al-Ajmi, M., Al-Sayed, N., Al-Ajmi, R. and Smew, W. (2019), Activity-based costing (ABC) for manufacturing costs reduction and continuous improvement: a case study. Proceedings of the International Conference on Industrial Engineering and Operations Management Issue, Czech Republic, July 23–26, pp. 1963–1975.
Al Hanini, E. A. (2018), The impact of adopting Activity Based Costing (ABC) on decreasing cost and maximizing profitability in industrial companies listed in Amman Stock Exchange. Academy of Accounting and Financial Studies Journal, vol. 22, is. 5, pp. 1–8.
Allain, E. and Laurin, C. (2018), Explaining implementation difficulties associated with activity-based costing through system uses. Journal of Applied Accounting Research, vol. 19, is. 1, pp. 181–198. https://doi.org/10.1108/JAAR-11-2014-0120.
Almeida, A. and Cunha, J. (2017), The implementation of an Activity-Based Costing (ABC) system in a manufacturing company. Procedia Manufacturing, vol. 13, pp. 932–939. https://doi.org/10.1016/j.promfg.2017.09.162.
Altawati, N. O. M. T., Kim-Soon, Ng., Ahmad, A. R. and Elmabrok, A. A. (2018), A review of traditional cost system versus activity based costing approaches. Advanced science letters, vol. 24, no. 6, pp. 4688–4694. https://doi.org/10.1166/asl.2018.11682.
Araujo, J. B. C. N., Souza, A. N., Joaquim, M. S., Mattos, L. M. and Lustosa Junior, I. M. (2020), Use of the activity-based costing methodology (ABC) in the cost analysis of successional agroforestry systems. Agroforestry Systems, vol. 94, pp. 71–80. https://doi.org/10.1007/s10457-019-00368-6.
Arora, A. K. and Raju, M. S. S. (2018), An analysis of activity based costing practices in selected manufacturing units in India. Indian Journal of Finance, vol. 12, is. 12, pp. 22–31. https://doi.org/10.17010/ijf/2018/v12i12/139889.
Bakulina, G., Fedoskin, V., Pikushina, M., Kukhar, V. and Kot, E. (2020), Factor analysis models in enterprise costs management. International Journal of Circuits, Systems and Signal Processing, vol. 14, pp. 232–240. https://doi.org/10.46300/9106.2020.14.34.
Barus, I. S. L., Arsalan, S., Edison, A., Sukmawati, F., Silviana and Putri, R. K. (2019), Description calculation of production costs and cost of good sold for the cattle ranchers in North Bandung regency, Indonesia. Journal of Advanced Research in Dynamical and Control Systems, vol. 11, spec. is. 3, pp. 674–683.
Bojnec, Š. and Fertő, I. (2010), Structure and Convergence of Agro-Food Trade of Central and Eastern European Countries with the European Union during Pre-Accession. Ekonomický časopis / Journal of Economics, vol. 58, no. 7, pp. 677–689, available at: https://www.sav.sk/journals/uploads/0914111007%2010%20Bojnec-Ferto.pdf
Calvi, K., Halawa, F., Economou, M., Kulkarni, R. and Chung, S. H. (2019), Simulation study integrated with activity-based costing for an electronic device re-manufacturing system. International Journal of Advanced Manufacturing Technology, vol. 103, is. 1–4, pp. 127–140. https://doi.org/10.1007/s00170-019-03429-3.
Gazzarin, C. and Lips, M. (2018), Joint-cost allocation in farm-activity cost accounting – a methodological overview and new approaches [Gemeinkostenzuteilung in der landwirtschaftlichen betriebszweigabrechnung – eine methodische übersicht und neue ansätze]. Journal of the Austrian Society of Agricultural Economics, vol. 27, pp. 10–15. https://doi.org/10.15203/OEGA_27.3.
Grznár, M., Szabo, Ľ. and Jankelová, N. (2009), Agrárny sektor Slovenskej republiky po vstupe do Európskej únie. Ekonomický časopis / Journal of Economics, vol. 57, is. 9, pp. 903–917, available at: https://www.sav.sk/journals/uploads/0920143509%2009%20Grznar%20a%20kol.pdf.
Jiran, N. S., Saman, M. Z. M. and Yusof, N. M. (2019), Development of cost estimation model of the membrane system. International Journal of Engineering and Advanced Technology, vol. 8, is. 5C, pp. 645–653. https://doi.org/10.35940/ijeat.E1091.0585C19.
Kucera, T. (2019), Application of the activity-based costing to the logistics cost calculation for warehousing in the automotive industry. Communications-Scientific Letters of the University of Zilina, vol. 21, no. 4, pp. 35–42. https://doi.org/10.26552/com.C.2019.4.35-42.
Lu, T.-Y., Wang, S.-L., Wu, M.-F. and Cheng, F.-T. (2017), Competitive price strategy with activity-based costing-case study of bicycle part company. Procedia CIRP, vol. 63, pp. 14–20. https://doi.org/10.1016/j.procir.2017.03.102.
Park, Y., Jung, S. and Jahmani, Y. (2019), Time-driven Activity Based Costing systems for marketing decisions. Studies in business and economics, vol. 14, is. 1, pp. 191–207. https://doi.org/10.2478/sbe-2019-0015.
Perevozova, I., Mohnenko, A., Mykhailyshyn, L., Stalinska, O. and Vivchar, O. (2019), Formation of account of reservoir expenses model. Academy of Accounting and Financial Studies Journal, vol. 23, spec. is. 2, available at: https://www.abacademies.org/articles/formation-of-account-of-reservoir-expenses-model-8224.html.
Polikarpova, E. P. and Mizikovskiy, I. E. (2019), The method of charging on indirect costs and recognizing them as costs of the period in a long production cycle. Custos e Agronegocio, vol. 15, no. 4, pp. 2–17.
Riesener, M., Dolle, C., Menges, A. and Schuh, G. (2019), Calculation and allocation of complexity costs using process data mining. IEEE International Conference on Industrial Engineering and Engineering Management, pp. 997–100. https://doi.org/10.1109/IEEM44572.2019.8978735.
Ríos-Manríquez, M., Muñoz Colomina, C. I. and Rodríguez-Vilariño Pastor, M. L. (2017), Is the activity based costing system a viable instrument for small and medium enterprises? The case of Mexico. Estudios Gerenciales, vol. 30, is. 132, pp. 220–232. https://doi.org/10.1016/j.estger.2014.02.014.
Sánchez, M., Moral, M. L. P. and Ramoscelli, G. (2020), Activity-based costing in smart and connected products production enterprises. Accounting, vol. 6, is. 1, pp. 33–50. https://doi.org/10.5267/j.ac.2019.6.002.
da Silva, F. F., de Medeiros, V. C., de Lima, D. H. S. and Lucena, E. R. F. C. V. (2019), Processes and activities cost management: A case study in a cattle breeding company. Custos e Agronegocio, vol. 15, no. 2, pp. 87–115.
Sinha, V. K., Chandra, B. and Pattanayak, J. K. (2020), Applicability of activity-based management system in coal mines – a case study of an underground coal mine. Journal of Mines, Metals and Fuels, vol. 68, no. 4, pp. 120–130.
Sorros, J., Karagiorgos, A. and Mpelesis, N. (2017), Adoption of activity-based costing: a survey of the education sector of Greece. International Advances in Economic Research, vol. 23, is. 3, pp. 309–320. https://doi.org/10.1007/s11294-017-9640-1.
Stratan, A. and Manole, T. (2018), Costs: key element of financial control. Economic Annals-XXI, vol. 173, no. 9–10, pp. 49–54. https://doi.org/10.21003/ea.V173-08.
Vetchagool, W., Augustyn, M. M. and Tayles, M. (2020), Impacts of activity-based costing on organizational performance: evidence from Thailand. Asian Review of Accounting, vol. 28, is. 3, pp. 329–349. https://doi.org/10.1108/ARA-08-2018-0159.
Wiȩcek, D., Wiȩcek, D. and Dulina, L. (2020), Materials requirement planning with the use of activity based costing. Management Systems in Production Engineering, vol. 28, is. 1, pp. 3–8. https://doi.org/10.2478/mspe-2020-0001.
Zhang, R. and Li, H. H. (2018), Study on logistics cost control based on activity-based costing. International Conference on Economic Management Science and Financial Innovation (ICEMSFI 2018), pp. 102–110. https://doi.org/10.12783/dtem/icems2018/25582.