The Impact of Activity-Based Costing on Organizational Performance

THE IMPACT OF ACTIVITY-BASED COSTING
ON ORGANIZATIONAL PERFORMANCE
By
Robin A. Sanford
A DISSERTATION
Submitted to
H. Wayne Huizenga School of Business and Entrepreneurship
Nova Southeastern University
in partial fulfillment of the requirements
for the degree of
DOCTOR OF BUSINESS ADMINISTRATION
2009

UMI Number: 3379105
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ABSTRACT
THE IMPACT OF ACTIVITY-BASED COSTING
ON ORGANIZATIONAL PERFORMANCE
by
Robin A. Sanford
The focus of this study was to determine the impact of activity-based costing
(ABC) on organizational performance. ABC can support the strategic management
process and provide significant benefit to organizations. Empirical research has provided
mixed results of ABC success, which has been the center of controversy since the 1980s.
This examination utilized the contingency theory as a theoretical basis for the study. The
researcher expected to find that ABC organizations succeed or fail to improve
performance due to how well they fit their strategies, structures, and managerial
accounting practices to the complex business environment. This study addressed the
fundamental question does ABC improve organizational performance? The study found
that management accounting practices could only significantly predict organizational
performance, as measured by market price, EPS, and asset turnover. The results
indicated that ABC organizations have higher asset turnover than non-ABC
organizations. However, non-ABC organizations have higher market price and EPS than
ABC organizations. The findings indicated no statistically significant differences in
operating performance when either ABC or non-ABC accounting practices are used with
a low-cost strategy. Finally, the results found no statistically significant differences in
operating performance when ABC organizations use a strategy other than a low-cost
strategy.

ACKNOWLEDGEMENTS
This dissertation would not have been possible without the guidance, support, and
patience of my dissertation committee, family, friends, and employer. I would like to
express my appreciation to Dr. Howard Lawrence, who agreed to be my dissertation
chairperson. Dr. Lawrence’s kind but straightforward attitude kept me focused on the
short-term and long-term goals of the dissertation process. I also would like to express
my gratitude to Dr. Judy Ramage, Dr. Ron Needleman, and Dr. Tom Griffin for their
constructive observations and suggestions for improvement.
I dedicate this dissertation in memory of my mother and father, who both passed
away during this process. Their unending love and support inspired me to continue my
education and work hard to accomplish my goals. My parents remain dear to my heart,
and they continue to influence the decisions I make in all parts of my life. I also express
my love and appreciation to my family and friends. Their love, patience, and
understanding helped me accept the loss of my parents and provided the motivation I
needed to keep moving forward with my education.
I would like to thank the management teams at Universal Leaf Tobacco Company
and Universal Leaf North America for their financial commitment to higher education
and the advancement of employee curiosity, skill, and knowledge. I also would like to
thank my supervisors and colleagues at Universal who have provided the time, support,
and resources to complete this dissertation.

vi
TABLE OF CONTENTS
Page
List of Table .................................................................................................................... viiii
List of Figures .................................................................................................................... ix
Chapter
I. Introduction ................................................................................................................... 1
Background of the Study .............................................................................................. 1
Purpose of the Study ..................................................................................................... 6
Importance of the Study ................................................................................................ 7
Statement of the Problem .............................................................................................. 8
Theoretical Framework ............................................................................................... 10
ABC and Organizational Performance ....................................................................... 12
Research Question ...................................................................................................... 13
Hypotheses .................................................................................................................. 13
Definition of Terms..................................................................................................... 15
Scope and Limitations................................................................................................. 16
Organization of the Paper ........................................................................................... 17
II. Literature Review........................................................................................................ 19
Introduction ................................................................................................................. 19
Contingency Theory of Organizations ........................................................................ 20
Contingency Theory in Managerial Accounting......................................................... 31
ABC ............................................................................................................................ 38
Organizational Performance ....................................................................................... 48
Summary ..................................................................................................................... 55
III. Methodology ............................................................................................................... 57
Introduction ................................................................................................................. 57
Conceptual Framework and Development of the Hypotheses .................................... 57
Research Question and Hypotheses ............................................................................ 61
Independent Variables ................................................................................................ 64
Dependent Variables for Performance Measures ....................................................... 65
Population and Sample ............................................................................................... 66
Data Collection and Analysis...................................................................................... 68
Summary ..................................................................................................................... 73
IV. ANALYSIS AND PRESENTATION OF FINDINGS............................................... 75
Introduction ................................................................................................................. 75
Sample and Data Collection........................................................................................ 75
Identification of Outlying Data ................................................................................... 78
Demographics ............................................................................................................. 78
Descriptive Statistics ................................................................................................... 80

vii
Regression Analysis .................................................................................................... 82
Market Price ...........................................................................................................83
EPS.........................................................................................................................85
Operating Performance ..........................................................................................86
Asset Turnover .......................................................................................................87
Debt Equity Management ......................................................................................88
ROI.........................................................................................................................90
ROE........................................................................................................................91
Pearson’s Chi-Square Test Results for H1–H3 ........................................................... 92
Two-Tailed t Test Results for H4 ............................................................................... 96
One-Tailed t Test for H5–H7 ...................................................................................... 98
Summary ................................................................................................................... 103
V. Summary and Conclusions ....................................................................................... 105
Introduction ............................................................................................................... 105
Conclusions ............................................................................................................... 108
Limitations and Implications for Future Research.................................................... 111
Summary ................................................................................................................... 113
Appendix
A. ABC Consultants ...................................................................................................... 114
B. Other Sources of ABC Organizations ....................................................................... 117
C. ABC Organizations ................................................................................................... 119
D. Non-ABC Organizations ........................................................................................... 123
E. ABC Performance Measures..................................................................................... 128
F. Non-ABC Performance Measures ............................................................................ 135
G. Demographics ........................................................................................................... 142
H. Descriptive Statistics ................................................................................................. 147
I. Regression Analysis .................................................................................................. 170
J. Chi-Square Tests ....................................................................................................... 238
K. Two-Tailed t Tests .................................................................................................... 247
L. One-Tailed t Tests ..................................................................................................... 264
References Cited ............................................................................................................. 307
Bibliography ................................................................................................................... 327