Integrating Activity Based Costing (ABC) with Enterprise Resource Planning (ERP) for Effective Management: A Literature Review

Abstract

In the age of a global competition environment, the accurate costing measurement is important for planning and decision-making. To achieve this goal, contemporary costing methods are tested and applied such as the Activity Based Costing (ABC) in conjunction with the use of modern Information Technology (IT). The review study attempts a comparative analysis of both ABC and Traditional Costing Accounting (TCA), examining the main themes emerging from academic research and practitioners concerning the challenges, benefits, and barriers of ABC, analyzing the impact of the integration between ERP and ABC systems and its effect on management performance. A review of the literature generated an initial pool of 322 studies. Upon extensive review, 38 studies were found to be relevant to this topic. It appears from the review and analysis of the academic literature and professional sources that a successful integration among ERP and ABC minimizes the operation costs, enhances competitiveness, improves the management of the enterprise, due to its abilities to provide more accurate costing information for a strategic decision. However, practical implications in adopting ABC under ERP could be very challenging, requires a huge amount of internal resources, commitment among employees, and top management. In closing, additional research studies employing both qualitative and quantitative methods as well as case studies are needed in order to provide insights into the impact of ERP and detailed implications of how the ABC accounting system is adapting to the ERP environment and its effect on firm performance.

Application of Using the Activity-Based Costing System on Product Development in Jordan’s Manufacturing Listed Manufacturing Firms

“…Greater understanding of the accuracy of costs may help with pricing decisions and perhaps disclose which items are most productive as well as those that are losing money. The empirical study demonstrates that widespread usage of ABC enhances the production process (Kitsantas et al, 2020). The study advances a number of past ABC performance studies, producing additional major contributions to this field.…”

“…When ABC was first presented, the community expected that most businesses would replace their existing costing methods with it. The identification of the ABC dilemma was critical in changing the ABC study from presentation to empirical study of why ABC is not more actively applied Vetchagool et al, 2019;Kitsantas et al, 2020).…”

“…The majority of businesses using these new business models continue to employ the same conventional costing and management control methods that were created in the past for a vastly different environment ( (Kissa et al, 2019;Kitsantas et al, 2020).…”

Measuring the Success of Activity Based Costing within the Enterprise Resource Planning Environment in Greek Companies

“…Xinxin and Weiping (2010) indicated that integrated ABC and ERP gives full play to the advantages of ABC and ERP, reverses the cost information distortion situation, and provides strong technical support for the implementation of ABC, improving the operability and accuracy of ABC greatly and enhancing the competitiveness of the enterprise. ERP and ABC systems will improve the organization's cost information while preserving the quality of the services in a timely and effective way (Kitsantas, Vazakidis, & Stefanou, 2020). Integrating the ABC within the ERP system can provide the ABC module with data, contained in the ERP system efficiently and economically.…”