Based Costing on Budget Slack and Commitment to Budget

81 Pages·2009·1.02 MB·English

UNIVERSITEIT GENT

FACULTEIT ECONOMIE EN BEDRIJFSKUNDE

ACADEMIEJAAR 2008 – 2009

The effect of using Time-Driven Activity-
Based Costing on Budget Slack and
Commitment to Budget

Masterproef voorgedragen tot het bekomen van de graad van

Master in de Toegepaste Economische Wetenschappen

Pieter Coenen

onder leiding van

Prof. dr. Werner Bruggeman

UNIVERSITEIT GENT

FACULTEIT ECONOMIE EN BEDRIJFSKUNDE

ACADEMIEJAAR 2008 – 2009

The effect of using Time-Driven Activity-
Based Costing on Budget Slack and
Commitment to Budget

Masterproef voorgedragen tot het bekomen van de graad van

Master in de Toegepaste Economische Wetenschappen

Pieter Coenen

onder leiding van

Prof. dr. Werner Bruggeman
PERMISSION

Ondergetekende verklaart dat de inhoud van deze masterproef mag geraadpleegd en/of
gereproduceerd worden, mits bronvermelding.

Pieter Coenen,

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The effect of using Time-Driven Activity-Based Costing on Budget Slack and Budget Commitment
Preface

I have written this essay to conclude my study Applied Economics, main subject Accountancy
at the university of Ghent. I would like to express my honest thanks to all individuals who
have helped me realising this master thesis directly and indirectly.
Primary I would like to thank my promoter Prof. Dr. Werner Bruggeman for granting me the
chance and giving me the confidence to realise this essay and for his helpful support, useful
recommendations and feedback. A special word of thanks I would like to direct to Alexandre
Grutman and Peter Bruggeman for their energetic, constructive and enthusiastic contribution
to the conducted case study research.
Furthermore, I would like to thank my esteemed colleague Kjell Veyt for his spontaneous
help, advice and grammar- and language correction of this master thesis and for his joyful
company during our joint studies.
Last but definitely not least I would like to express gratitude to my loving parents and sister
for their unconditional support, confidence and faith throughout my entire education. Without
them all of this wasn‟t achievable.

My sincere thanks,
Pieter Coenen

May 19th, 2009

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The effect of using Time-Driven Activity-Based Costing on Budget Slack and Budget Commitment
Table of Contents

PERMISSION ............................................................................................................................................... i
PREFACE..................................................................................................................................................... ii
TABLE OF CONTENTS........................................................................................................................ iii
LIST OF ABBREVIATIONS ................................................................................................................. v
LIST OF FIGURES................................................................................................................................... vi
ABSTRACT .................................................................................................................................................. 1
INTRODUCTION ...................................................................................................................................... 2
1. THEORETICAL CONTEXT ............................................................................................................ 4
1.1 EVOLUTION OF COST SYSTEMS ................................................................................................................... 4
1.1.1 Traditional Standard Cost Systems .................................................................................................. 4
1.1.2 Activity- Based Costing .................................................................................................................... 5
1.1.3 Time-Driven Activity-Based Costing ................................................................................................ 6
1.2 BUDGETING ............................................................................................................................................... 8
1.2.1 Participative Budgeting ................................................................................................................... 8
1.2.2 Relevant Budgeting Concepts........................................................................................................... 9
1.2.3 Participation-Information Asymmetry-Slack Creation .................................................................... 10
1.2.4 Participation-commitment-Slack Creation ..................................................................................... 12
1.2.5 Variables of Budget Slack .............................................................................................................. 13
1.3 ACTIVITY-BASED BUDGETING & DEVELOPMENTS ..................................................................................... 14
1.3.1 Activity based Budgeting ................................................................................................................ 15
1.3.2 Strategic Budgeting ....................................................................................................................... 16
2. HYPOTHESIS DEVELOPMENT ................................................................................................. 18
3. RESEARCH METHOD ..................................................................................................................... 21
3.1 RESEARCH DESIGN ................................................................................................................................... 21
3.2 CASE STUDY SELECTION ........................................................................................................................... 23
3.3 DATA COLLECTION ................................................................................................................................... 23
3.4 DATA ANALYSIS ....................................................................................................................................... 24
3.5 CASE STUDY RESEARCH WEAKNESSES ....................................................................................................... 24
4. CASE STUDY & RESULTS ............................................................................................................ 26
4.1 WYMAR INTERNATIONAL ......................................................................................................................... 26
4.1.1 Company Introduction ................................................................................................................... 26
4.1.2 TD-ABC Project ............................................................................................................................ 27
4.1.3 Budget Slack .................................................................................................................................. 28
4.1.4 Job Related Tension ....................................................................................................................... 30
4.1.5 Budget Commitment....................................................................................................................... 32
4.2 PB GELATINES ......................................................................................................................................... 34
4.2.1 Company Introduction ................................................................................................................... 34
4.2.2 TD-ABC Project ............................................................................................................................. 34
4.2.3 Budget Slack ................................................................................................................................... 35

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The effect of using Time-Driven Activity-Based Costing on Budget Slack and Budget Commitment
4.2.4 Job Related Tension ........................................................................................................................ 37
4.2.5 Budget Commitment........................................................................................................................ 38
4.3CITCO ....................................................................................................................................................... 39
4.3.1 Company Introduction .................................................................................................................... 39
4.3.2 TD-ABC Project ............................................................................................................................. 40
4.3.3 Budget Slack ................................................................................................................................... 41
4.3.4 Job Related Tension ........................................................................................................................ 44
4.3.5 Budget Commitment........................................................................................................................ 45
4.4CROSS-CASE ANALYSIS & DISCUSSION ..................................................................................................... 47
4.4.1 Prerequisites ................................................................................................................................... 47
4.4.2 Budget Slack .................................................................................................................................... 48
4.4.3 Job Related Tension ......................................................................................................................... 51
4.4.4 Budget Commitment ........................................................................................................................ 52
4.4.5 Extended Model ............................................................................................................................... 54
5. GENERAL CONCLUSIONS ........................................................................................................... 56
6. LIMITATIONS & SUGGESTIONS FOR FUTURE RESEARCH .................................... 58
REFERENCES ......................................................................................................................................... vii
APPENDIX .................................................................................................................................................. xi

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The effect of using Time-Driven Activity-Based Costing on Budget Slack and Budget Commitment
List of Abbreviations

ABC: Activity-Based Costing
TD-ABC: Time-Driven Activity-Based Costing
ERP: Enterprise Resource Planning
ABM: Activity Based Management
CAM-I: Consortium for Advanced Manufacturing-International
ABB: Activity Based Budgeting
BB: Beyond Budgeting
BU: Business Unit
CEO: Chief Executive Officer
CFO: Chief Financial Officer
SAP: System Analysis and Program Development
HACCP: Hazard Analysis and Critical Control Points
ISO: International Organization for Standardization
BSC: Balance Scorecard
P&L: Profit & Loss
KPI: Key Performance Indicator

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The effect of using Time-Driven Activity-Based Costing on Budget Slack and Budget Commitment
List of Figures

FIGURE 1: ACTIVITY BASED COSTING ........................................................ 60
FIGURE 2: TIME-DRIVEN ACTIVITY BASED COSTING ................................. 61
FIGURE 3: LITERATURE MODEL ................................................................... 62
FIGURE 4: BUDGET GOAL COMMITMENT MODEL ......................................... 63
FIGURE 5: THE ABB-APPROACH: THE CLOSED LOOP MODEL .................... 64
FIGURE 6: PRIOR THEORY MODEL ............................................................... 65
FIGURE 7: EXTENDED MODEL: CASE STUDY RESEARCH ............................. 66

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The effect of using Time-Driven Activity-Based Costing on Budget Slack and Budget Commitment
Abstract

[
This master thesis examines the influence that Time-Driven Activity-Based Costing (TD-
ABC) has on the behavior of subordinate managers in a participating budget setting. To
examine the effects a case study was performed with three companies who had developed and
implemented TD-ABC in (several) department projects. The case study results indicate that
when sufficient time and training are provided to subordinate managers in an environment of
trust, confidence and support, the TD-ABC methodology reduces the amount of budget slack
because of induced visibility and motivation and boosts the manager‟s commitment to budget
through induced ownership. The effects of TD-ABC on job related tension felt by the
manager are rather ambiguous since there is no consent, according to the conducted case
study, whether or not TD-ABC has a direct negative impact or an indirect positive impact on
]
job related stress.

Keywords – Time-Driven Activity-Based Costing, Participative Budgeting, Information
Asymmetry, Budg et Slack, Budget Commitment, Job Related Tension.

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The effect of using Time-Driven Activity-Based Costing on Budget Slack and Budget Commitment