Actual and potential use of activity-based versus volume-based cost systems: an empirical study of cost systems including interrelationships with contextual factors

Abstract

The aim of this study is to contribute some explanation and understanding to the debate about the adoption and use of activity-based cost systems versus volume-based cost systems. A theoretical model is developed from the literature that links changes of contextual factors: intensity of competition, production complexity, and product diversity, to cost system use. Three hypotheses are developed which propose that the actual use of a cost system is interrelated between each contextual factor and cost system type. The expectations based on the theoretical model are that greater comparative use will be made of activity-based cost systems, when contextual factors are high, than of volume-based cost systems. Three alternate hypotheses are developed based on the first three. These hypotheses propose that activity-based cost systems are perceived to have, when each contextual factor is high, greater potential use. These hypotheses are specifically developed after consideration of the literature, and existing broadly based survey evidence that often did not validate expected findings.