Effectiveness of Cost Management Systems in Turkish Manufacturing Companies with a Special Emphasis on Use of Activity Based Costing

Abstract

Accurate and analytical cost information is vital for operational and strategic decisions in an organization. Overhead costs are one of main components of the product cost along with direct material and direct labour costs. Since overheads are allocated by means of simplistic cost drivers, e.g., labour hours, process time, traditional cost methods were criticised by activity based cost supporters, claiming traditional methods were distorting the cost information. ABC was designed and developed to provide more accurate and analytical cost information by means of appropriate cost drivers to allocate overhead costs fairly.

The purpose of this study to examine and understand the adoption and effectiveness of cost systems especially ABC (Activity Based Costing) in publicly listed large manufacturing companies in Turkey.

The results of the study indicates that 35 Turkey’s manufacturing companies out of 193 publicly listed manufacturing companies, calculates the production cost mainly by traditional cost systems. 15 of responders replied that they have adopted ABC. On the other hand, 20 of the participants stated that they were still using traditional cost systems. Even though ABC users assessed their cost systems more successful for a few applications, for the rest of applications traditional method users assessed their system as more successful against ABC users.

Key Words: Activity Based Costing, Overhead Costs, Activity Based Management, Corporate Strategy