Small-Medium Enterprises’ Responsibilities and Activity Based Costing (ABC) or Traditional Cost

This article discusses the effectiveness of traditional cost accounting and activity based costing in small-medium enterprises (SMEs). It examines the advantages and limitations of using activity based costing in SMEs and provides a literature review on SMEs.

Running head: COSTING MECHANISM
The Small-Medium Enterprises’ Responsibilities andActivity Based Costing (ABC) or
Traditional Cost
University Name
Student Name
Authors’ Note

COSTING MECHANISM
Table of Contents
Background of the research........................................................................................................4
Aims and objectives...................................................................................................................5
Research Questions....................................................................................................................5
Research Requirement Discussion.............................................................................................5
Examination of effectiveness of traditional cost accounting (TCA) for SMEs.........................5
Examination of effectiveness of activity cost accounting (ABC) for SMEs..............................7
Benefits of using activity based costing in SMEs......................................................................7
Limitations of using activity based accounting (ABC) in SME................................................8
Literature Review.....................................................................................................................10
Small and medium sized enterprises....................................................................................10
Activity Based Costing........................................................................................................12
Activity Based Costing and SMEs.......................................................................................18
Research Methodology:...........................................................................................................18
Research Onion:...................................................................................................................19
Research Philosophy:...........................................................................................................20
Research Approach:.............................................................................................................21
Stating the kind of research that is intended to carry out:....................................................22
Depicting the data and information that is required beyond the literature review:..............23
Identifying the source that might be used for obtaining data or information:.....................23
Specifying the relevant statistical tests in details that will be conducted for the research:. 24
Stating limitations on reliability or representatives of the sources used for the research....25
Ethical consideration............................................................................................................25
References and bibliography....................................................................................................28

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ResearchBackground
Small-to-medium size enterprises (abbreviated as SME) are functioningin hugeburdenso as
toremain competitive in thecurrent economy worldwide. Also, there exists range ofstratagems
for small sized enterprises for attainingeffective ways of market reaction, costsavings, and
financial effectiveness. Also, these take incontractconcerning established approaches of
management regarding supply chain and enhanced accounting framework. In essence, the
significantpurpose of the current article is to represent the base and process behind ABC
costing and to find out the advantages of utilizing ABC over and above traditional systemof
withinsmall as well as medium sized enterprises (SMEs).
The environment of business, particularly forsmall and medium sized corporations
isalteringon a regular basis. Therefore, SMEs have the need to modernize and upgrade their
systems of accounting often so as toremain competitive and to augmentbusiness profitability
(Foroughi et al., 2017). As rightly indicated by AlKhajeh and Khalid (2018), activity-based
costing emphasizes actions that consume varied resources of particularly costs of driver and
SMEs (Ríos-Manríquez et al., 2014). Consequently, the small as well as medium sized
corporations moving forwardthe most from employment of ABC (activity based costing
technique) would be necessarily SMEs with a striking quantity of expensesimpacting to a
range of actions in giving commodities towards the consumers who has a changing demand.
Again, it can be hereby mentioned that in case if SMEs have very lessor no overhead
expenditure of production and produces products that are almost indistinguishable that
demands similar care for each product, the need for ABC can be changed (Hall & McPeak,
2011).. This present discussionchecks the various issuesconcerning both technical and
managerial in relation to themodel of activity-based costing (ABC).

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Small-Medium Enterprises’ Responsibilities and Activity Based Costing (ABC) or
Traditional Cost
Aims and objectives
 To critically examineoverall effectiveness of utilizing traditional cost accounting in
particularly SMEs
 To examine efficacy of using accounting based on activity within particularly SMEs
 To evaluate advantages of using accounting based on activity within particularly
SMEs
 To assess overall limitation of taking up activity-based accounting in essentially
SMEs
Research Questions
 What is the effectiveness of the TCA or traditionalsystem of cost accounting in the
context of the SMEs?
 What is the effectiveness of theABC activity based accounting in the context of
theSMEs?
 Which are the benefitsof implementation ofABC activity based accounting in the
context of the SMEs?
 Which are the disadvantages of implementation of ABC activity based accounting in
the context of the SMEs?
 Which are the advised strategies for reduction restrictionsof implementation of ABC
activity based accounting in the context of the SMEs?

Research Requirement Discussion

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Examination of effectiveness oftraditional cost accounting (TCA) for SMEs
As suggested by Namazi (2016), traditional costing system can be considered to be an
accounting mechanism that is utilized for prediction of profits. Essentially, this mechanism
utilizes cause and effect mechanisms and considers both direct/indirect costs along with
expends in a corporation.
Traditional cost accounting mechanism can be said to be effective for small as well as
medium enterprises (SMEs) as this method is quite simple. SMEs can enumerate this specific
rate by means of pooling different indirect costs and implementing the same equally in an
ascertained common unit (for ex, machine hours) (Foroughi et al., 2017). Thereafter,
management of firms enumerates the costs of each and every product/service utilizing
identical rate. Particularly, this can be considered to be comparatively less intricate than the
alternative mechanism of activity cost mechanism, that enumerates the cost of each and every
product/service founded on definite expends.
Cost Effective
As this method is considered to be less intricate than activity cost, accountants of corporation
do not face the need to spend time performing calculations for traditional cost mechanisms.
Therefore, traditional cost is considered to be less pricey than activity costing.
Internally Understood
There are different corporations that prefer traditional costing as they comprehend it properly
and trust company’s reliability. This remains effectual at the time when overhead is at a low
level to specific direct costs (Ahmad, 2017).
Easy to illustrate externally
Business concerns (small and medium sized ones) often utilize traditional costing
mechanisms in financial assertions as outsiders can evaluate overall value of
products/services in a simple manner.

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In addition to this, traditional cost can be said to be best utilized at the time when overhead of
a firm is relatively low in comparison to direct production costs (Yang & Chang, 2018). This
necessarily provides reasonably appropriate cost figures at the time when production volume
is huge and alterations in overhead costs do not generate a substantial variation when
enumerating production costs. Essentially, traditional costing mechanisms are inexpensive to
execute. Small as well as medium sized enterprises normally make use of traditional costing
for external report as it is quite simpler and at the same time simpler for outsiders to
comprehend. Nevertheless, it does not provide manager accurate image of costs of products
as the rates applicable of the overhead load is quite illogical and implemented equally to costs
of different products. In essence, overhead costs are necessarily not allocated to different
products that in actual fact consume different overhead actions (Ngubane et al., 2015).
Intrinsically, traditional mechanisms of costing is said to be best utilized for different
manufacturers that only produce different products.
Examination of effectiveness of activity cost accounting (ABC) for SMEs
Activity based costing can be said to be very accurate, however, it is said to be the most
intricate one to implement. Essentially, it is more suitable for business corporations having
higher overhead costs in place of companies that deliver services. SMEs can implement
activity based system of costing as this can help in the process of presentation of accurate
costs of products by means of concentrating on specific causes as well as effect associations
in cases of cost incurrence (Kalkhouran et al., 2017). This identifies that it is actions that
generate costs and not the products; thereby it is product that necessarily consume actions.
Benefits of using activity based costing in SMEs
Management of SMEs can implement activity based costing mechanisms as ABC detects the
actual nature and behavior of costs and aids in decreasing costs and recognizing actions that

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do not attach value to firms’ products. Thus, by means of implementation of ABC system of
costing, managers of corporations can control different several fixed costs of overhead by
exercising higher level of control over the actions that have generated said fixed overhead
costs (Potkany et al., 2016). Also, implementation of ABC can help in different actions that
are necessarily within as well as beyond the SME to track greater number of overheads to
company’s products. Implementation of ABC can also help in enhancing decision making
procedures since they can utilize more dependable data on product cost. Again,
implementation of ABC, by means of procedures of pooling of different activity costs and
recognition of drivers of cost can direct the way towards a wide range of applications.
Furthermore, small and medium sized business concerns operating in the service industry
have different features than manufacturing corporations. Service business concerns have
approximately no direct costs and majority of costs can be considered to be overheads and
they not necessarily hold stocks of essentially service since the service is essentially
consumed at the time when it is developed (Kustiningsih et al., 2017). Ahmad (2017)
suggests that ABC mechanisms can deliver superior quality of information on costing and aid
the management to carry out their task effectively and acquire better comprehension
regarding competitive advantage of firms along with strengths as well as weaknesses of small
sized enterprises. Often, managers have the requirement of a superior system of costing
namely ABC. Also, ABC system also has greater influence on corporations that have areas
with huge, escalating expends and have several products/services, number of customers,
procedures otherwise a combination of all the identified factors (Bruwer et al., 2017).
Essentially, business concerns that assume both small as well as large orders, present standard
and at the same time tailored deliveries can take into consideration implementation of ABC
based system of costing.

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Limitations of using activity based accounting (ABC) in SME
Armitageet al.(2016) asserts that ABC is the most effective when there exists numerous
overheads and different products. In any specific environment there exists numerous
overheads and ABC cannot be considered to be worthy and is not considered to deliver
insights Similarly, ABC is said to be irrelevant in any kind of business that markets a single
product or that delivers an individual service that is normally the case in small as well as
medium enterprises (Sunarni, 2015).
The primary limitations of activity based costing in SMEs are that this mechanism is quite
pricey to execute and at the same time maintain (Sung et al., 2018). Also, ABC systems of
costing generate reports that are necessarily different from profit/loss declarations generated
by means of traditional methods of costing (Dwivedi & Chakraborty, 2016). Since, majority
of corporations are utilizing traditional systems of costing, there remains variation on the
basis of costing as well as financial pronouncements of the two different firms operating in
identical industry and cannot be compared. Again, adaptability to different ABC systems
accounting is not appropriate for different types of corporations (particularly, small as well as
medium sized corporations) do not have several resources. There are numerous actions and
size of business transactions is observed to be extremely low.
In addition to this, data generated by means of ABC costing mechanisms can be
misinterpreted and this in turn can direct the way towards wrong business decisions (Rizwan
et al., 2018). Essentially, ABC systems of costing does not necessarily adhere to standard
regulations (say, GAAP) and business concerns face the need to present the reports (for both
internal as well as external requirements) by means of utilizing traditional together with ABC
systems both at once. Sunarni (2015) suggests that in case of ABC system of costing, costs
are necessarily allocated on the basis of drivers and actions are undertaken to produce the
product. Intrinsically, this delivers accurate and appropriatemechanisms of allocations of

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costs to different products. However, there exists a threat of over or else under costing of
products when inappropriate drivers of costs or else activities are assigned to different
products.
As suggested by Kazemi and Zadeh (2015), implementation of ABC system can be
considered to be a large project that calls for substantial resources. This resource when
implemented can be said to be pricey to implement. Essentially, data regarding numerous
activity dimensions need to be gathered, examined and entered into the specific system. Also,
ABC generates numbers namely margins of products that are necessarily odds with the
particular numbers generated by the traditional systems of costing. However, managers are
familiarized to utilizing traditional methods of costing to undertake their operations. In
particular, traditional costing systems are often utilized in analysis of performance.
Essentially, activity based system of costing can get misinterpreted and need to be utilized
when employed in the process of decision making (Hada et al., 2014).
Literature Review
Small and medium sized enterprises
Large, huge-profile, international firms accept an overpoweringlyhigher amount of attention
from the media and recognition of name. However, as the subsequent facts recognize, role of
small as well as medium sized enterprises (SMEs) (ones having lower than 500 employees) in
the case in the U.S., plus the financial system of free-market countries around the planet, is
noteworthy.
SMEs necessarily deliver the capability to bridge the slit particularly between rich people and
the poor ones in different growing economies, by presenting prospects of employment to
individuals who are not truly employable by large sized firms (Siguenza-Guzman et al.,
2016). Particularly, SMEs can be regarded to be the nursery for huge sizedcorporationsin the

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upcoming period, contributing considerably to cumulativesavings, and augmentationof
technology and level of investment. Hudakova and Bajus (2015) suggest that SMEs are
necessarily incubators for drivinginnovation along withaugmentationin employment, in both
developed along withdeveloping nations. In addition to this, SMEs can help out developing
nations in the process of transition from agrarian-based communities to different
manufacturing-based economies and to make progress from instabilities generated by war.
Industrialists in SME section can be regarded to be significantdrivers of development in a
specific economy. Essentially, creation of job in different SMEs calls for low capital expends,
that is necessarily important for developing nations (Fisher and Krumwiede, 2015).
An addedimportantfunction of the segment of Small/medium sized firms is the prospect it
delivers to women, particularly in diversedeveloped along withgrowingnations. However, this
is done in a bid to become significant players in both micro level and small enterprises (Phan
et al., 2014).
Small as well as medium sized enterprises (SMEs)encountered considerably greater
difficulties than larger nations in the process of recovering from global recession of the
period 2008 (Parker, 2016). Essentially, one of the main issues, encountered by firms both
during the period of recovery in addition toprocess of moving forward into the upcoming
period can be regarded to be important for cost reduction. Krumwiede and Charles (2014)
observed that SMEs can reduce costs as they recovered from period of recession. However,
there was relativelylittlenumber of developed nations that conducted a cost-
decreasingscheme. The majorityof the companies carry on to utilizeconventional, volume-
based meansof costing that againfailinascertainingrealand tangible costs along withdegree of
competitiveness of firms. The general issues usually faced by SMEs intending to enter
worldwide markets contain inadequacy of formalized operations and superior quality
standards, higher costs, language, cultural obstacle, bureaucratic difficulties, restricted

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management together with other employee competence, conventional, often informal
accounting exercises (Charaf & Rahmouni, 2014).
Maruszewska (2015) put forward the fact that SMEs that happen to be the builders of the
civil societyreflect animportantsection of commerce globally. This provides employment to
majority of individualsglobally, facilitating innovation, attracting and at the same time
retaining talent, inspiringrate of growth of economy, helping suppliers along with incubators
for large sizedcorporations. This alsodeliverschances to counter poverty and affect
monetaryexpansion.Again, over period ofpast few years, worldwidecontest,
dynamicmarketplace, and a challenging cost book-keepingsystem have exertedstress on
particularly small and medium sized firms. There are small businesses that lack admittance to
technology, knowledge about contemporary techniques of accounting, and monetary
assistance, and are from time to time impeded by regional rules as well as set of laws (Kuo &
Yang, 2014). At the same time, as argued by Pazarceviren and Celayir (2014), monetary
unsteadiness and rivalry over the previousfew years have in point of factprovided a path for
alteration—improvedarrangement and bettersuppleness—that in turn can eventuallyhelpsmall
businesses.
Activity Based Costing
The primary purpose of accounting of cost in particularly administration is to deliver
requisite data for executives. In essence, executives can make use ofeffective data on cost to
arrive at decisions that can finally enhance financial performance of corporations. Starting
fromcommencement of industrial revolution until the period of 2nd half of twentieth century,
majority of producers generated huge amount of few number of products with majority of the
costs originating from direct costs namely, materials as well as labour. Fundamentally,
traditional system of cost accounting concentrated on particularly direct materials as well as
labour in essentially product cost and simply approximated costs of overhead, disregarding

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enhancing function of different overheads (Ríos-Manríquez et al., 2014). As industrial
potential is transformed over the period ofpastseventy five years, producers couldproduce
different categories of products, in different quantities, each and every unit manufacturing
varied overhead amounts. Usage of sophisticated machinery for the purpose of manufacturing
customizable products to place an order can add overheads. However, knowledge regarding
information plus communication technology (ICT) have made it feasible to amass and
channelize correct information regarding the actions that go into manufacturing a specific
manufactured goods. Ahmad (2017) suggests that activity costing as well as input output
system of accounting instituted the thoughts of activity based system of costing and allocate
costs to each product founded on costs of actions necessary to manufacture the same.
As suggested by Yang and Chang (2018), activity based costing (ABC) helps firms in more
effective system of costing of firms’ products. Whilst traditional systems of costing depend
on simple dimension for proper allocation of firms’ overheads, ABC can depend on different
cost pools plus cost drivers for assignment of cost as per overhead utilization. The most
important element of activity based system of accounting can be considered to be cost driver
utilized. Essentially, cost drivers can be said to be the most important factors that can
ascertain total quantity of activities that can be considered by a definite produce. Instances of
drivers of cost take account of total hours of machine, overall amount, intricacy, different
types as well as other attributes of product that can ascertain costs. Ngubane et al., (2015)
indicate the fact that this mechanism is used in the course of allotmentof overhead expends in
essentially managerial system of accounting. Even though associates of research disagree on
precise footsteps followed in activity based costing, it fundamentally requires the below
mentioned processes:
- Determination of different actions that are involved in manufacturing each and every
product and different cost drivers for enumerating the same

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- Ascertainment of costs linked to each and every action
-Ascertainment of proportion of time different workforces spend on actions for each and
every product- by means of conduction of interviews otherwise logs
-Enumeration of rates of activity cost drivers (Potkany et al., 2016)
-Assignment of costs to different products otherwise clientele by separating activity costs by
means of production of each and every action
The most importantbasis of using cost accounting method in the quarter of administration is
necessarily to deliver requisite data for company managers. Management of business
enterprises can associate to products to advertisements. Again other decisions thrive to
augment operations, lower overall level of costs and permit competitive pricing (Kustiningsih
et al., 2017). As all these types of decisions depend to a great extent on data of book-
keepingof cost then having correct data is indispensable for a business in recognizing basis of
firms’ revenue and optimizing prospective profitability. Since lines of product have
necessarily developed to be intricate and specific markets have become moderately more
segmented, enterprises have designedmany products for different small sized place of market.
In addition to this, sales and enumerated profits for these markets can be considered to be
lesser than formerlycollective products. Furthermore, this adjustment in overall competitive
and reasonable business setting has made compulsion for more fitting costing information.
As indicated by Sunarni (2015), activity-based costing can help in better allocation of
overhead expendsas it does not cluster costs that are distributed across severalactions.
Reviewersof conventionalaccounting system for cost disagree that overhead expends are
essentiallyallottederroneously. This directs towardsdecreased decisions regarding decisions
with regard to product continuance and pricing. There are circumstances where a
reasonableproposition or else cost-plus system of pricing is essential. Also, specific cost of
corporation’sproduct is critical for product/service pricing. Again,decisions founded on

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erroneous cost data can put forth an influenceoverall profitability of the corporations in these
situations. As stated by Bruwer et al., (2017), indirect cost is anenormousproportion of costs
of firms’ products on the whole. Essentially, activity based system of accounting is said to be
superior to conventional system that is traditional cost accounting in delivering data for
appropriate decisions of pricing (Kalkhouran et al., 2017). In last decades, direct labour stood
at 25% to around 30% of the entire cost of firms’ products, however, ever since the period of
1960s, the same is said to have drastically dropped (Potkany et al., 2016). In this regard, it
can be said that dominant costs of firms’ products is necessarily indirect costs.
Parker (2016) points out towards the fact that traditional systems of costing have the tendency
to utilize a specific rate that can be multiplied by a particular factor. This can help in
ascertainment ofoperating cost allocation for a definite product/service otherwise
program/project. Particularly, this can also show the way toinaccurate means of costing,
particularly when incurring overhead cost is not proportional to that particular facet. In
essence, in a specific circumstance under which a workforce institutes aninstrument and runs
the same while undertaking other works, utilizing direct labour as a factor for overhead
allocation of firms can direct the way towards inaccurate system of costing. In essence, the
machine hours are rigorously overhead intensive when considered characteristically. These
can be essentially left untreated and ignored, whereas other actions can be charged greater
overheads whilst employing fewer amounts of resources aside from direct labour (Rizwan et
al., 2018). Utilizing an individual rate for allocation of overhead founded on a single factor
can head to misallocation of overhead. This is so because different operations within a
particularly shop might vary extensively (Siguenza-Guzman et al., 2016).
Parker (2016) out forward the fact that traditional systems of costs are to great extent
criticised for excess-costing simplefirm products that are created in large sized batches
together with products that depend on higher utilization of allotment base. In essence,

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standard system of costing also has the tendency to reflect cost of tailored products to be
lower than they are in actual fact. Furthermore, inaccurate system of costing can generate
losses as complicated work has the inclination to be underpriced. In essence, the system of
costing might perhaps not account for particular features otherwise special know-how. These
complicated projects/programs are essentially under-proposed and the company can
succeedin specific bids for unbeneficialfunctions. It is at this similarperiod, the same projects
can become over-rated and consequently, taking away of beneficial projects can be wanted
and simultaneously won by the enterprise. In itself, this particular phenomenon can be hidden
by inaccurate otherwise inadequate systems of costing, directing towards erosion of margins
of firms’ profits and damage to overall financial feasibility (Phan et al., 2014). At the time
when complexprojects are fittingly priced, there are few orders placed for the same and more
number of orders for can be generated for standard products. Special products call for greater
support from office executives. Also minute decrease in overall fraction of unique orders
againstportion of standard orders have a considerable influence on resources of staff essential
for similar level and degree of order actions. Yet another issue encountering firms is the way
to cope withidyllic potential in costing of firms’ product. Traditional mechanism of
conducting costing have the tendency to distribute costs of idle resources across different
products manufactured, suppressing true cost of products and falsely inflating costs of
product (Krumwiede & Charles, 2014).
Charaf and Rahmouni (2014) assert that system of activity costing mechanism can separate
costs of the idle potential from the real costs of firm’s manufactured products. Incorporating
surplus potential in costs of products augments perceived product costs without adding
specific value to the same. As such, this enhancement in costs can exert impact on managers
of firms to want to pull product prices to augment level of profitability. Essentially, this
enhancement in prices in the nonexistenceof product development can lessen total number of

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sales. This in turn can lead to enhancement in idle faculty. Since this idle faculty is re-billed,
then there can be upward pressure on firms’ pricing on a continuous basis and can thereby
drive down sales. In particular, this death twirl can necessarily be averted by means of
eliminating idle wealth/resource costs from costs of manufactured product (Kuo & Yang,
2014). At the time when not including costs of idle potential from costs of products in
internal arrangement of cost accounting, then overall project cost remains the same,
nevertheless, the product is more accurately reflected. Apart from reflecting product costs, a
specific system of accounting can underline or else conceal probable procedures and product
enhancements. This traditional system of accounting does not deliver a groundwork based on
which management can develop. Costing mechanisms that simply replicate cost do not stand
for excess costs incurred by enterprises (Kazemi & Zadeh, 2015).
Eventually, operations are gradually more outsourced, and firms’ margins become leanwhilst
production facilities of firms become idle, therefore allocating highercosts of overhead to the
left over manufactured products. Continued existence can be considered to be extremely
difficult for a corporation (Pazarceviren & Celayir, 2014). Activity-based costing operates in
the same manneradministration thinks so that enhancements can be completedwith the
costing data formed.
Activity based costing-ABC was considered to smooth the progress ofpresentingprecise
information on the subject of production procedures, costs, and activities for product support.
This can help managers in becoming equipped in a better way and to presentenhancements
that eventuallyenhance the profitability of firms. Decisions as regards design of product, mix
of products, marketing strategies, together with product price can beevaluatedin the course
ofcorrectdata on product costing. Hada et al., (2014) suggest that this activity-based costing
(also simply referred to as ABC) intends todeliveradministration a means to drive
repeatedenhancement and finallyaugment profitability of enterprises. Furthermore, ABC can

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assist in the process of identification of significant cost-and-profit improvement opportunities
in the course of pricing of unprofitable associations of customers, procedures of
enhancements on shop floor, low-cost designs of product, and streamlined product range
(Hudakova & Bajus, 2015). Again, with no overhead, firms’ product costing can essentially
becomeuncomplicated. Particularly, direct labouralong with direct materials can be tracked to
products. Essentially, overhead can be considered to betricky to allocateaccurately and this
can be considered to be aconsiderablesegment of product cost. In essence, systems of cost
accounting (referring to variable/ conventional or else activity based system of accounting)
need not be viewed as good/bad. There is a necessity to selectbased on correctnessand
suitability for the corporation and data requirement.
Traditional systems of costing can be considered to be the most suitable system when an
enterprise or else a shop essentially present a distinctive product (Hudakova & Bajus, 2015).
By and large, by means of a combination of standard costing and activity based costing can
help most companies. There are certain corporations thatmake use of standard systems of
costing to apportion direct labour as well as materials. Essentially, activity-based costing is
also used to apportionand deal out with overhead. There are also other firms thatmake use of
a standard system of cost for the purpose of financial accounting together with activity-based
costing for undertaking internal accounting. Assimilating the entire systems can permitfirms
to preserveand maintain the benefits of both the techniques—better-quality control for the
purpose of standard costing and advancedallocation of overhead for activity-based system of
costing (Hudakova & Bajus, 2015). Particularly, there are a number ofcurrent studies that
replicaterequest for information for transformed interest in activity based costing and
elucidatesprospective and benefits of execution of activity based costing in small and medium
sized enterprises.

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Activity Based Costing and SMEs
There are varied arguments both in favour and against and analysis can be presented as per
case studies. All together, enhancing awareness regarding the significance of SMEs, as
declared previously reflect over and above 90% of employment across the entire world. This
has delivered impulsion for supplementary analysis of prospect of the company activity based
costing to aid SMEs, help in becoming relatively more competitive and keep going in stiffly
competitive environment.
Research Methodology:
The research relevantly utilises both the primary and secondary data for the research
purposes, where the output data aligns with the research topic. The research methodology
highlights different approaches and philosophy, which has been used for identifying the
relevant output of the research topic. In addition, the section has also highlighted
therelevantinformationregarding primary data, which is evaluated with the help of statistical
tools for deriving the overall output for the research topic. The statistical calculation has been
used for evaluating the primary data collected for detecting the output for the research. The
statistical calculations such as descriptive analysis, is used for evaluating the collected data
and derive the research output. The central tendency conditions have been used in the
calculating the relevant measure for identifying the optimal research output. Lastly, the
ethical considerations and limitations of the research is also depicted for identifying the
constraints that has affected the research data.
Research Onion:
The aims of the study are to derive the significance of using activity based costing and
traditional costing method by SMEs. The requirements of the research compel the study to
gather mixed data, as it uses both the qualitative and quantitate analysis for conducting the

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research. In addition, the research onion indicates the overall steps, methods and approaches,
which would eventually allow the researcher to obtain the required level of output for
supporting the research objective (Mackey & Gass, 2015). In the concept of research onion,
the study will be utilising both surveys and secondarily data from the journals to gather the
required data for obtaining the results. This would relevantly result in the research
methodology of mixed method simple. The research has been using the methodology of
mixed method simple for analysing the overall data that has been collected for the research.
Furthermore, the mixed method simple relevantly analyses both qualitative and quantitative
data for identifying the optimal research outcome. The research onion is considered to be a
pathway, which has been used by the researchers to detect the level of method and conditions
that needs to be conducted for competing the research and meeting the research objective.
The relevant path of the research also indicates the use of deducting approach for evaluating
the gathered data, as it helps in detecting the accurate output for the research. The research
also uses positivism method, as the overall research philosophy, which can help in providing
valid objectivity to a research (Panneerselvam, 2014). Hence, with the presence research
onion relevantly simplifies of the overall process and detects the pathway which can be used
for completing the overall research and derive adequate outputs. Therefore, the research
onion has adequately guided the whole research to obtain the relevant data for supporting the
research objectives and deriving the results.
Research Philosophy:
The research philosophy relevantly has four different section, which are used by different
researchers in their study to derive the overall output for the research. Furthermore, the
overall philosophy relevantly comprises of positivism, realism, Interpretivism and
pragmatism, which can be used for conducting the adequate research and deriving the output
for the research. The use of positivism relevantly allows the researcher in evaluating the data

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in diverse positive factors, which could generally help in detecting the accurate evidence for
the research (Taylor et al., 2015). The overall use of positivism approach would also help in
understanding the workings of the Traditional and Activity based approaches in the SMEs.
The positivism theory directly uses the specific positive knowledge where it utilises the
natural events for identifying the overall data used in the research. Therefore, it could be
understood that with the implementation of positivism theory the research is able to derive
valid output from the analysis.
The other researchers relevantlyuse different research philosophies in accordance with the
research requirement, where the use of realism, Interpretivism and pragmatism are conducted
for deriving the accurate output for the data. The research relevantly uses quantitative and
qualitative analysis for analysing the overall data collected for the research. In this context,
the research has been using post positivism method for analysing the overall data collected
for the research. The research has been using the qualitative and quantitative data, which
relevantly evaluates both the collected data (Lewis, 2015). The use of post positivism method
has portrayed the adequate output data for the research, which allowed in evaluating the
interviews and research data selected from academic journals. The research philosophy has
been an adequate guide, which results both the collected data for surveys and the academic
journals.
Research Approach:
The researchapproach is conducted to be a path way which allows researcher for adequate
analysing the collected data and derive appropriate result or output for the study. There are
two different kinds of research approach such as inductive and deductive, which are used by
researchers in identifying the output. The researcher with the inductive measure is able to
reason different level of observation and develop illustrative theories, which can be used for
identifying different level of illustrative theories that can be used for identifying the pattern in

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entire series of hypothesis. The use of inductive approach allows the researcher for
developing the accurate level of specific direction that can be followed in completing the
study (Glesne, 2015).
However, the deductive approach method is relevantly used by the researchers for utilising
subsisting theory and research strategy for examining different level of research for
completing the study. In addition, with the use of deductive approach the researcher is mainly
able to derive specific conclusion from the general rule and detecting the accurate output for
the research. The researcher directly utilises the defined model and approach for deriving the
overall output of the research, which is considered to be true in comparison to the inductive
approach (Pearson et al., 2015). Furthermore, the deductive approach utilises different
hypothesis for conducting relevant output of the research. The current research relevantly
portrays the effectiveness, usefulness and limitation of the traditional and activity-based
costing method in SMEs. Therefore, with the use of defined theories and models the research
is able to the evaluate the gathered data, while identifying the accurate output supporting the
objective of the study (Flick, 2015).Hence, deductive approach has been used in the study for
adequately identifying the relevant output supporting the research objective.
Stating the kind of research that is intended to carry out:
The research relevantly needs both interviews and secondary data for deriving the accurate
output, which support the overall research outcome. The research relevantly indicates the use
of different surveys from the SMEs, as it helps in deriving the overall data for supporting the
research objective. In addition, the data has been collected from different journals, which
relevantly helps in detecting the significance of traditional and activity-based costing
methods. This would eventually help in understanding the accurate data for detecting the
adequate output for research. The research has relevantly used both the secondary and
primary data in deriving the adequate output for the research and analyses the method for

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identifying the linking between the limitations and benefits of using traditional and activity-
based costing method (Vaioleti, 2016).
The study has also used adequate philosophy of post positivism method, which has relevantly
allowed the research for analysing both the qualitative and qualitative method. The researcher
has relevantly used different level of approach, which has helped in analysing the collected
data. The use of deductive approach is essential for the research, as the topic relevantly
utilises different level of defined models and theories for deriving the accurate output of the
research. The research has mainly used secondary and primary method is analysing the
overall data collected from surveys and journals.Silverman (2016) mentioned that researchers
with the use of adequate measure are able to detect the accurate methods, which can be used
in deriving the research output. The statistical calculations have been used for detecting the
research outcome, which supports the research objectives.
Depicting the data and information that is required beyond the literature review:
Data has been collected from different surveys, which has allowed them to detect the
different level of data for identifying the accurate results (Quinlan et al., 2018). The data
collected from the surveys could eventually help in identifying the accurate level of data for
the study. The data will also be collected from the relevant surveys conducted within the
SMEs to identify the relevant significance and limitation of the costing measures. The
adequate level of business operations has been selected where the 10 SMEs are used for
gathering the overall data for the research. This selection process of the SMEs has relevantly
helped in collecting the overall data, which can be used for deriving the accurate output for
the research. Litosseliti (2018) mentioned that with the use of surveys researchers are able to
gather the data and responses, which are statistically evaluated to deriving the output
supporting the objectives of the study.

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Identifying the source that might be used for obtaining data or information:
The research has been conducted with the help of surveys from SMEs and journals
addressing activity based costing and traditional costing. The data has been collected from the
adequate journals, which is relevantly evaluated to derive the overall results, which is needed
for supporting the research objectives (Smith, 2015). In addition, the journal linking to
activity based costing and traditional costing is relevantly utilised in the current research for
detecting the significance and limitation of the current measure used by the SMEs.
Furthermore, the journals are collected from authentic source, which does not compromise
the overall integrity of the research and poses threat to the outcome. The journals of
renounced authors and researchers are used, which directly highlights the relevant
information about the traditional and activity-based costing method. Lewis (2015) stated that
with the use of secondary data collection process the research is able to understand the
previous research limitation and derive the path in which the research could obtain fruitful
results.
Furthermore, the research uses both secondary and primary data collection process, where
with the help of adequate survey of the SMEs, the primary data is collected for the research,
where adequate statistical data is used for deriving the research output. The data of 10 SMEs
has been used for gathering the relevant data for the research, which can highlight the
significance and limitation of the costing measure in real world application.
Specifying the relevant statistical tests in details that will be conducted for the research:
The data has been collected for both secondary and primary data, which can be analysed with
the help of qualitative and quantitative method. The qualitative method has been used for
analysing the data collected from the journals, while the primary data collected from surveys
will be evaluated with the help of statistical tools (Silverman, 2016). The use of descriptive
statistic and inferential statistics has been used for calculating the overall primary data

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(Ledford & Gast, 2018). The central tendency has been calculated with the help of excel
software. Furthermore, the data is collected from the overall surveys need to be analysed with
the help of adequate statistical calculation and method, which drives the output used for
supporting the research objective. The calculation of Annova, regression and correlation is
relevantly used for evaluating the overall collected data to derive the results used for
supporting the research objective. The use of excel calculation such as descriptive analysis is
used for evaluating overall data collected from the survey to understand the significance of
the costing measures used by the SMEs. Ledford and Gast (2018) stated statistical calculation
is relevantly helpful in deriving the trend and analysing high end data. The description
analysis highlights the significance and limitation of activitycosting and traditional costing
measure used by companies. This might eventually help insupporting the researchobjective
and determine the optimal costing method that can be used by the SMEs.The statistical
method has always been used for evaluating the primary data collected for the overall
research.
Stating limitations on reliability or representatives of the sources used for the research
Reliability of sources utilized for the study
Relying on different state of affairs, gathering of data for reliability evaluates can either be an
uncomplicated matter or else main areas of headache. Even though there is not an official
data system of collection in position, odds are that much of the necessary general information
is being amassedso as to track costs of warranty and financial information. Particularly, the
prospective drawback is that system of collection of data might perhaps not be instituted to
amassdifferent categories of data essential to execute a detailed reliability evaluation. As
stated by Pérez-Méndez and Machado-Cabezas (2015), there are numerous methodologies for
collection of data thatconcentrate on facets of performance of field other than dependability.
By and large, it can be considered to be small matter to transform data collection procedures

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to amassessential reliability information.
Ethical consideration
Ethical Codes: Informed approval
Informed consent can be considered to be an important ethical concern in undertaking
research study. This refers to the fact that a specific individual knowingly, willingly,
intelligently and in a clear way provides consent. Informed consent can be considered to be
one of the ways by which respondents’ rights to autonomy can be protected. Informed
consent intends to fit in rights of self-governing individuals by means of self- determination.
Also, thisalso intends to avert assaults on reliability of individuals and defend personal liberty
and reality. Of course, individuals can present informed decisions to partake in research
willinglyonly when they have information regarding probable risks as well as advantages of
research study.
The researchers have the need to consider individuals with physical, cultural as well as
emotional barriers that might call for extremely simple language for proper comprehension.
In conclusion, autonomy to withdraw needs to be illustrated. Essentially, this can be
considered to be extremely important. However, this raises overall issue of withdrawing
subjects after development of a personal along with friendlyassociation with the investigator.
Beneficence
Beneficence can be considered to be difficult to forecast at the time ofgenerating a hypothesis
particularly in qualitative research. Weber (2017) says that in case if research findings
establish that it was not advantageous as it was anticipated. This can raise massive ethical
reflection especially for respondents. Nakata (2015) asserted that beneficence can be referred
to advantagesassociated to research, whilst non-malificence links to prospective risks of
involvement. Simmons and Watson (2015) mentioned that Nonmalificence calls for higher
degree of sensitivity from researcher as regardsthe notions that constitute "harm". As per

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Brannen (2017), "discomfort together with harm can be considered to be physiological,
expressive, social along with economic in feature".
Respect for particularly anonymity as well as confidentiality
The researcher encounters the issue of confidentiality along with anonymity. This is said to
be closely connected to the rights and authority of beneficence. Anonymity has the need to be
protected at the time when the identity of the subject cannot be associated with personal
reactions. In case if the researchers can promise anonymity then the issue of confidentiality
can also be addressed. In essence, this can be considered to be the most important way of
management of private information by the learner form protection of identity of the subject.
Vaioleti (2016) advocates the fact that confidentiality refers to the fact that individuals have
the freedom to deliver and at the same time withhold certain information. Also, the researcher
is also accountable to maintain certain degree of confidentiality that necessarily goes beyond
loyalty. Taylor et al., (2015) address ethical dilemma of the learner when confidentiality is
considered and need to broken keeping in mind moral responsibility of firms.
Respect for respondents’ privacy
Privacy can be considered to be freedom that a specific individual has for ascertainment of
time, degree, extent along with normal circumstances under which private information can be
shared or else withheld from others. Simmons and Watson (2015) asserts that invasion of
privacy takes place when private information namely beliefs, viewpoints, attitudes and
behaviors as well as records can be shared with different others. Pearson et al., (2015) suggest
that whenever different subjects decline to report personal information since they consider the
same to be invasion of privacy. In this case as well, the researcher has the need to show
respect to different opinions and outlooks of respondents.
Vulnerable groups
These days, there is said to be an enhanced concern regarding vulnerable groups and it is

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important to consider whether it is ethical to employthese vulnerable groups. Different
viewpoints as regards participations in research can indicate towards incapability to provide
an informed consent.

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