Cover image for Activity-based costing : making it work for small and mid-sized companies
Activity-based costing : making it work for small and mid-sized companies
Hicks, Douglas T.
Personal Author:
Second edition.
Publication Information:
New York : John Wiley, [1999]

Physical Description:
xix, 357 pages : illustrations ; 24 cm.
General Note:
Series statement taken from book jacket.

Includes index.
Format :


Call Number
Material Type
Home Location
Item Holds
HF5686.C8 H49 1999 Adult Non-Fiction Central Closed Stacks

On Order



* A practical, cost-effective guide to ABC for small to medium companies.
* Identifies the key cost related issues in organizations and shows how to develop a cost-flow structure that reflects the organization's cost behavior.
* Feature an ongoing case study throughout the book documents the model-building process.
* Provides a spreadsheet model blueprint that details data flows.
* Shows how a cost model of an organization can be developed using basic spreadsheet software on a PC.

Author Notes

Douglas T. Hicks, CPA, CMC, is a Senior Managing Consultant at BKD, LLP, the nation's eighth largest accounting and consulting firm, and Team Leader of their Decision Costing Services practice. Before entering consulting in 1985, he spent fifteen years in public accounting at Ernst & Young, and in industry with Hayes-Albion Corporation and Kelsey-Hayes Company. Hicks is a member of the American Institute of CPAs, the Michigan Association of CPAs, the Institute of Management Accountants, and the Institute of Management Consultants. He is also the author of Activity-Based Costing for Small and Mid-Sized Businesses: An Implementation Guide, published by Wiley.

Reviews 1

Choice Review

Hicks has written a spirited, commonsense contribution to the accounting literature based on the major premise that activity-based costing (ABC) is a beautifully simple, adaptable process. He deftly presents the shortcomings of generally accepted accounting principles (GAAP) as a basis for costing products, with criticisms of depreciation accounting and the failure to recognize value-added expenses. The author illustrates the fallacy of arbitrary cut-offs with a baseball analogy. Not identified, however, is a major flaw in traditional cost accounting that is predicated on labor intensive manufacturing processes, which are now outdated. Furthermore, this reviewer disagrees with the contention that GAAP is balance sheet focused. Rooted in societal preoccupation with earnings, accounting principles concentrate on fair presentation of earnings, frequently to the detriment of useful balance sheets (e.g., LIFO, income tax accounting, and pension accounting). Balance sheets include unrealistically low inventories and large unidentifiable deferred tax and pension liabilities. Hicks provides a very useful model tool-box for activity-based costing, two real-life scenarios, and step-by-step instructions for developing a spreadsheet-based cost accumulation and distribution model. Overall, a superb, in-depth summary of this commonly misunderstood concept that small business owners will surely embrace. Undergraduate and graduate accounting and finance students as well as practitioners. J. F. Phillips; Southern Connecticut State University

Table of Contents

Prefacep. xv
Chapter 1 Activity-Based Costing: The First Decadep. 1
Pre-ABC Erap. 1
Primary Purpose of Cost Informationp. 2
Dawn of the ABC Erap. 3
ABC at Small and Mid-Sized Businessesp. 4
Chapter 2 Strange Case of Ace Manufacturingp. 7
Ace Manufacturingp. 7
Changing to Multiple Overhead Ratesp. 9
Changing to Multiple Overhead Basesp. 10
Segregating "Throughput"-Driven Costsp. 12
Identifying Product Line Costsp. 12
Summaryp. 14
Chapter 3 What Is Activity-Based Costingp. 16
ABC at Small and Mid-Sized Businessesp. 18
An Activity-Based Modelp. 21
Three Keys to Effective ABCp. 21
Which Small and Mid-Sized Businesses Are Most at Risk?p. 21
Is ABC Worth the Required Investment?p. 26
Summaryp. 27
Chapter 4 Deadly Virus of Generally Accepted Accounting Principles: Determining True Economic Costsp. 28
Accounting and Astronomyp. 28
Accounting and Baseballp. 30
Accounting Periods and Generally Accepted Accounting Principlesp. 30
Impact of Astronomy and Baseball on GAAPp. 32
Retroactive/Prospective Balance Sheet Modificationsp. 32
Expenses That Are Investmentsp. 34
Depreciationp. 38
Nonannual Cost Cyclesp. 45
Expenses That Are Not Incurredp. 46
Death Spiralp. 47
Summaryp. 49
Chapter 5 Logic of Activity-Based Costingp. 50
Designing the Activity-Based Cost Flowp. 51
Throughput or Direct Costsp. 51
Service and Operations Support Activitiesp. 53
Throughput or Material Support Activitiesp. 54
Market or Customer Support Activitiesp. 56
Product or Product-Line Support Activitiesp. 59
Value-Adding or Direct Activitiesp. 61
Event or Transaction Activitiesp. 62
General and Administrative Activitiesp. 64
Cost Flow-Down Step 1 Assigning Costs to Activitiesp. 65
Cost Flow-Down Step 2 Assigning Costs Among Activitiesp. 67
"Cafeteria Line" of Activity Center Costsp. 70
Cost Flow-Down Step 3 Assigning Activity Costs to Jobs/Productsp. 71
Completion of Cost Flow-Down Step 3p. 74
Activity-Based Cost Accumulationp. 76
Summaryp. 77
Chapter 6 Case Study: Acme Distributorsp. 78
Developing an ABC Structure--Service and Support Activitiesp. 79
Developing an ABC Structure--Operating Activitiesp. 81
Developing an ABC Structure--Assigning Costs to Cost Objectivesp. 86
Determining Customer Profitabilityp. 92
The Structure vs. the Numbersp. 98
Summaryp. 109
Chapter 7 Decision Costing: The Real Reason for Activity-Based Costsp. 110
Pricing Decisionsp. 111
Core Business Pricingp. 112
Special Order Pricingp. 119
Strategic/Product-Line Pricingp. 121
Long-Term Contractsp. 124
Capital Expenditure Decisionsp. 128
Outsourcing (Make/Buy) Decisionsp. 133
Other Decision Situationsp. 134
Summaryp. 135
Chapter 8 Activity-Based Costing Model Toolboxp. 136
Operating Labor Demand/Supply Equationp. 136
Screensp. 142
The ABC Perspectivep. 148
Weighted Events and Transactionsp. 151
Consumption Unitsp. 159
Labor-Based Cost Accumulation and Distributionp. 164
Piece-Rate Cost Accumulation and Distributionp. 167
Machine Hour/Cycle Time Distributionp. 168
Line/Cell Time Cost Distributionp. 170
Production Manpower Poolp. 175
Internal Costsp. 177
Summaryp. 179
Chapter 9 Developing Cost Flow-Down Structures: Case Studiesp. 180
Sunshine Flowers, Inc.p. 181
Discussionp. 184
Road Shows, Inc.p. 189
Discussionp. 192
Summaryp. 200
Chapter 10 Building a Cost Accumulation and Distribution Modelp. 201
Cost Model Structure--Generalp. 203
Cost Model Structure--Bottom Upp. 204
Cost Model Structure--Top Downp. 214
Summaryp. 219
Chapter 11 Small-Time Manufacturing: Developing the Conceptual Modelp. 220
Venturing into Activity-Based Costingp. 221
Throughput or Direct Costsp. 222
Service and Operations Support Activitiesp. 222
Throughput or Material Support Activitiesp. 223
Market or Customer Support Activities and Product or Product-Line Support Activitiesp. 223
Value-Adding or Direct Activitiesp. 223
Event or Transaction Activitiesp. 225
General & Administrative Activitiesp. 225
Other Considerationsp. 225
Cost Flow-Down Step 1 Assigning Costs to Activitiesp. 226
Cost Flow-Down Step 2 Assigning Costs Among Activitiesp. 228
Cost Flow-Down Step 3 Assigning Activity Costs to Jobs/Productsp. 231
Summaryp. 231
Chapter 12 Small-Time Manufacturing: Building the Cost Accumulation and Distribution Model, Part 1--Cost Accumulationp. 232
Operating Information and Resource Requirementsp. 233
Schedule #01 Contract Activity Summaryp. 234
Schedule #02 Operating Information and Resource Requirementsp. 234
Resource Conversionp. 237
Schedule #03 Resource Conversionp. 237
Screensp. 237
Schedule #04 Screenp. 239
Operating Manpower Demandp. 240
Schedule #05 Operating Manpower/Demandp. 240
Automatically Variable Costsp. 243
Schedule #06 Automatically Variable Costsp. 243
Operating Manpower Supplyp. 243
Schedule #07 Operating Manpower/Hours Availablep. 245
Schedule #08 Operating Manpower/Supplyp. 247
Schedule #09 Operating Manpower/Costp. 249
Step Variable Costs--Support Staffp. 251
Schedule #10 Support Staffp. 251
Fringe Benefits and Other Headcount-Driven Costsp. 253
Schedule #11 Fringe Benefitsp. 253
Schedule #12 Other Headcount-Driven Costsp. 255
Fixed Costs and Budgeted Costsp. 255
Schedule #13 Fixed and Budgeted Costsp. 255
Total Cost Accumulationp. 258
Schedule #14 Cost Accumulationp. 259
Summaryp. 263
Chapter 13 Small-Time Manufacturing: Building the Cost Accumulation and Distribution Model, Part 2--Cost Distributionp. 264
Other Data and Cost Distributionp. 265
Schedule #15 Square Footagep. 265
Schedule #16 Automatic Distributionsp. 267
Schedule #17 Activity Analysis Distributionsp. 267
Schedule #18 Cost Distributionp. 270
Schedule #19 Cost/Rate Reconciliationp. 274
Model Directoryp. 276
Model Completionp. 276
Summaryp. 278
Chapter 14 Small-Time Manufacturing: Product Costingp. 279
Contract Costing Comparisonsp. 281
Contract Profitability Comparisonsp. 292
Contract Contribution Analysis: Eliminate Contract #04p. 295
Contract Contribution Analysis: Add Another Contract #10p. 300
Summaryp. 303
Chapter 15 Small-Time Manufacturing: Discrete Event Simulation or "What If?" Analysisp. 305
Scenario 1

p. 306

Scenario 2

p. 312

Scenario 3

p. 314

Scenario 4

p. 316

Summaryp. 319
Chapter 16 Small-Time Manufacturing: Multiyear Costing and Pricingp. 320
Small-Time Manufacturing's Opportunityp. 322
Establishing "Then Year" Costing Ratesp. 322
Multiyear Costing/Pricing Templatep. 324
Production Requirementsp. 324
Direct and Throughput Costsp. 332
Direct/Value-Adding Costsp. 333
General and Administrative Activitiesp. 337
Multiyear Program Pricingp. 337
Summaryp. 340
Chapter 17 Impediments to Adopting Activity-Based Costing at the Small and Mid-Sized Organizationp. 342
Impediments to Attempting ABCp. 343
Perceived Lack of Resourcesp. 343
Entrepreneurial Egop. 344
Lack of Decision Costing Skillsp. 345
Desire to be a Settler, Not a Pioneerp. 345
Impediments to Succeeding with ABCp. 346
Desire to Be Taught, Not to Learnp. 346
Lack of Decision Costing Skillsp. 347
Employee Turnoverp. 347
Summaryp. 348
Chapter 18 Making Activity-Based Costing Work at the Small and Mid-Sized Businessp. 349
Indexp. 355