Why the proper definition of the ABC matters: A note

The purpose of this chapter is to identify the most appropriate ways of defining the adoption and non-adoption of activity-based costing (ABC). This chapter uses the responses to a questionnaire survey of management accountants working in British manufacturing industry to test if there are differences across various definitions of adoption and non-adoption in the level of competition, product customization, manufacturing overhead cost percentage and operating unit size. When there are no significant differences between the groups making up each definition this indicates that the definition is appropriate and can be used to define adoption or non-adoption. The results of the research show that the only appropriate definition for ABC adoption is operating units that are currently using ABC. It is possible to define non-adoption in three ways as operating units that are not using ABC, but have considered it; those that are not using ABC, but have considered it except those intending to use it; and those that have rejected ABC, but have never adopted activity-based principles or have never previously used ABC. Comparisons between these two groups show that operating units that have adopted ABC are significantly larger than non-adopters, regardless of how non-adoption is defined. Prior research into the adoption of ABC has used a variety of definitions for the adoption and non-adoption of ABC without examining the appropriateness of these definitions. This chapter overcomes this deficiency by empirically testing the most appropriate definitions.