Abstract
This study identifies the various elements and factors that a financial services
company needs to consider when implementing activity-based costing. This
study evaluates the appropriateness of activity-based costing for financial
services and proposes an implementation framework for activity-based
costing in this environment.
Management, in today’s constant changing and competitive world, needs
management information to support strategic and pricing decisions.
Traditional financial accounting information sometimes hides the economic
reality of client profitability and product costs, and does not supply sufficient
information for pricing decisions. This study confirmed that activity-based
costing can assist in addressing this problem.
Activity-based costing was originally developed for the manufacturing
environment. By studying available literature, this study proved that activitybased
costing can be used successfully in a financial services environment. A
manufacturing environment has a higher direct cost input than a services
environment. The cost structure in a services environment allows a higher
percentage of cost to be allocated by identifying activities and using cost
drivers to allocate these costs to cost objects.
Activity-based costing models add value to management by supplying them
with information that supports strategic decisions, pricing decisions,
understanding client profitability and product costs.
This study points out that there are crucial success factors that need to be
considered before embarking on the implementation of activity-based costing.
Finally the study proposes that activity-based costing be implemented in a
financial services environment to support management decision making.
Prof. A.L. Boessenkool