Activity-Based Costing of Library Services in Universities—A Case Study of a Private University

Abstract

An organization's costing system is a system that helps the management with the strategy planning while the system plays an important role in providing accurate cost information about the products and customers. In other words, the costing management system is important to provide timely and quality information to help managers in their decision-making process. Producing quality graduates is the main objective of any university and the cost of quality or the cost of poor quality is one that is often difficult to measure in higher education. This can be partly attributed to the fact that most accounting systems are not structured to capture important cost-of-quality information. In order to succeed, many organizations tend to shift from conventional or traditional costing system to Activity-based costing (ABC). ABC provides both higher education administrators and policymakers with better information on which to base decisions. The use of multiple cost pools and drivers under ABC leads to more detailed and accurate product costing than that provided by traditional cost systems. This paper attempts to investigate the possibilities and limitations of implementing ABC in universities. More specifically the study makes use of the case study method to illustrate the implementation of activity-based costing of library services in a private university in the Kingdom of Bahrain. The research methodology of the case study is a combination of both descriptive and quantitative analyses. The study identified six categories of cost pools which are related to the activities of the library as well as 17 relevant cost drivers. Accordingly, ABC should lead to a better understanding of what drives costs and, by extension, what changes are necessary to reduce costs. Unnecessary activities that do not add value to services can be identified and eliminated. Further ABC is feasible in an academic library and that much can be gained from the process of analyzing activities. However, more work needs to be done in terms of designing accounting and other information systems to capture cost and activity transaction data in a more routine and disaggregated form for ABC analysis.