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...s; allocations should vary with the quality or complexity of service. What then is the issue is how to track these activities involved in each service and the resources consumed by it to arrive at an accurate unit cost of service. The theory behind ‘cost drivers’ is the causal relat ionship between cost and the resources used by the service, contract or unit. There is therefore every need to unitize service cost[36]. Variable costs vary with change of activity and it is precisely this variation, and the activity that causes the variation, that gives rise to the search for cost drivers. To[37],[38] the broadening of product line increases a company’s power to compete in the market. It leads to higher market share and end performance. However,[37] is of the view that a company may lose its cost advantage at the same time if the operations are not well understood. Most hotels offer variety of services in order to satisfy their customers. This is the same as broadening product line which under normal circumstances should make the business profitable and grow b igger. Borrowing from[37]) that a company may lose its cost advantage as it expands, the researcher is of the opinion that broadeni...

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...ies are still using the same tradit ional cost accounting system that was developed decades ago. Traditional cost accounting methods do not accurately reflect the contribution of indirect cost to individual services. They pool all indirect cost and then allocate them to the various services in proportion to service volume of direct cost. This approach tends to over estimate the unit cost of high volume services and under estimate the cost of low volume services. Most studies dealt with the deficiencies of this traditional costing system in automated production environments[7];[8]. According to[9], the use of activity-based costing (ABC) enhances the traditional contribution marg in approach. ABC came as result of the continual quest for a better costing system. It was an alternative to the traditional volume-based system. ABC approach assumes that either products or customers give rise to some activit ies, and these activities consume resources[9]. ABC therefore allocates costs of resources to the activities then the costs of activities are apportioned to cost objects by means of volume and non-volume related drivers[10]. Put differently, costs of activities are allocated to cost obje...

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... in the consumption of the firms resources. Traditional cost accounting uses one cost driver (direct labor or machine hours) as the basis for allocating overhead costs, International Journal of Finance and Accounting 2013, 2(6): 297-306 301 and this can be inaccurate and misleading because it may apply too much cost to one product and not enough to another. ABC system achieves improved accuracy in the estimation of costs by using multip le cost drivers to trace the cost of activ ities to those products or services associated with the resources consumed by those activities, hence preferable. To[29] several practical cases indicate that ABC can be of value for product pricing, production decision making, overhead cost reduction, and continuous improvement. To[30] An ABC approach uses multip le drivers to reflect how resources and activities are actually consumed which provides a more accurate assignment of cost than traditional cost systems that typically rely on a limited number of volume based measures, such as direct labour hours or sales volume. To[31] ABC is an examination of activities across the entire chain of value adding organizational processes. It unveils the underlying cause...

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...de cost informat ion for prudent stewardship of the overall organizational resources. Cost management is therefore the use of cost accounting 300 Azende Terungwa et al.: Time-Driven Activity-Based Costing and Effective Business Management: Evidence from Benue State, Nigeria systems and methods to guide current and future operations towards specified object ives. Costing is the analysis and interpretation of cost data to enhance decision-making process. To[11] units makes up the whole and therefore costing should be primarily concerned with the units cost to tract accurate cost of operation. To[21] Costing is simply the ascertainment of costs. It gives factual informat ion on which management accountants can build up h is presentation of planning and control of operations. Costing enables a business not only to find out what various products or service have cost but also what they should have cost by unveiling where losses and waste are occurring. We are experiencing an ever changing business environment, these changes are a function of knowledge and informat ion we are exposed to. The development and use of informat ion especially cost management in formation is a crucial factor in the...

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...r service departments within manufacturing firms, service businesses like hotels could also use cost driver and ABC concept. Services vary from one customer to the other, because of this; allocations should vary with the quality or complexity of service. What then is the issue is how to track these activities involved in each service and the resources consumed by it to arrive at an accurate unit cost of service. The theory behind ‘cost drivers’ is the causal relat ionship between cost and the resources used by the service, contract or unit. There is therefore every need to unitize service cost[36]. Variable costs vary with change of activity and it is precisely this variation, and the activity that causes the variation, that gives rise to the search for cost drivers. To[37],[38] the broadening of product line increases a company’s power to compete in the market. It leads to higher market share and end performance. However,[37] is of the view that a company may lose its cost advantage at the same time if the operations are not well understood. Most hotels offer variety of services in order to satisfy their customers. This is the same as broadening product line which under normal circums...

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...onal processes. It unveils the underlying causes or drivers of cost and profits. To[32] ABC offers a workable and more effective insight into overhead allocation and recovery. It improves the quality of costs and management allocating information; it also gives managers a wider understanding of the economies of production. As many companies have acknowledged that while the improved products cost information provided by ABC is useful, its real power lies in its ability to identify cost reduction opportunities[33]. ABC has been extended from cost view to process view. That is to say according to[34] that ABC has moved from product costing to process improvement. This extension, enable managers to understand their organizat ions thereby enhancing the quality of their strategic decisions. 2.4.1. Problems/limitations of the Traditional ABC This traditional ABC was however more appropriate for pilot studies or department levels. Several problems arose when companies attempted to scale up this seemingly straightforward approach to cover the whole organizat ion. There was problem maintaining the model to reflect changes in activit ies, processes, products, and customers[12]. The process to int...

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...ably, most companies are still using the same tradit ional cost accounting system that was developed decades ago. Traditional cost accounting methods do not accurately reflect the contribution of indirect cost to individual services. They pool all indirect cost and then allocate them to the various services in proportion to service volume of direct cost. This approach tends to over estimate the unit cost of high volume services and under estimate the cost of low volume services. Most studies dealt with the deficiencies of this traditional costing system in automated production environments[7];[8]. According to[9], the use of activity-based costing (ABC) enhances the traditional contribution marg in approach. ABC came as result of the continual quest for a better costing system. It was an alternative to the traditional volume-based system. ABC approach assumes that either products or customers give rise to some activit ies, and these activities consume resources[9]. ABC therefore allocates costs of resources to the activities then the costs of activities are apportioned to cost objects by means of volume and non-volume related drivers[10]. Put differently, costs of activities are alloc...

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...ABC system, as well as it allows cost driver rates to be calculated based on the practical capacity of the resources supplied[13]. There is more literature on ABC with respect to manufacturing companies as compared to service organizations.[14] asserts that, even though ABC has been applied in service firms such as health care and financial institutions, the use of ABC in the hotel or restaurant is scarce.[15] also echoes that the use of ABC in the hotel industry is limited. CPA was a relevant unique feature of the hotel industry which only ABC was likely to address. It was for this quest that[16] conducted an ABC-based customer profitability analysis in an Irish hotel. The result of this work showed that the traditional costing method was not capable of addressing operational requirements where diverse services are rendered. He concluded that ABC was better in this regard. [17] posited after their study that although there was considerable knowledge of the theory of ABC, there was low understanding of how it might be used in hotels. This he emphasized was based on the envisaged shortcomings of ABC and the believe that it was only for manufacturing organizations. In the same vain[18] f...

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...at ABC can be of value for product pricing, production decision making, overhead cost reduction, and continuous improvement. To[30] An ABC approach uses multip le drivers to reflect how resources and activities are actually consumed which provides a more accurate assignment of cost than traditional cost systems that typically rely on a limited number of volume based measures, such as direct labour hours or sales volume. To[31] ABC is an examination of activities across the entire chain of value adding organizational processes. It unveils the underlying causes or drivers of cost and profits. To[32] ABC offers a workable and more effective insight into overhead allocation and recovery. It improves the quality of costs and management allocating information; it also gives managers a wider understanding of the economies of production. As many companies have acknowledged that while the improved products cost information provided by ABC is useful, its real power lies in its ability to identify cost reduction opportunities[33]. ABC has been extended from cost view to process view. That is to say according to[34] that ABC has moved from product costing to process improvement. This extension, en...

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..., International Journal of Finance and Accounting 2013, 2(6): 297-306 301 and this can be inaccurate and misleading because it may apply too much cost to one product and not enough to another. ABC system achieves improved accuracy in the estimation of costs by using multip le cost drivers to trace the cost of activ ities to those products or services associated with the resources consumed by those activities, hence preferable. To[29] several practical cases indicate that ABC can be of value for product pricing, production decision making, overhead cost reduction, and continuous improvement. To[30] An ABC approach uses multip le drivers to reflect how resources and activities are actually consumed which provides a more accurate assignment of cost than traditional cost systems that typically rely on a limited number of volume based measures, such as direct labour hours or sales volume. To[31] ABC is an examination of activities across the entire chain of value adding organizational processes. It unveils the underlying causes or drivers of cost and profits. To[32] ABC offers a workable and more effective insight into overhead allocation and recovery. It improves the quality of costs and m...

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...lied in service firms such as health care and financial institutions, the use of ABC in the hotel or restaurant is scarce.[15] also echoes that the use of ABC in the hotel industry is limited. CPA was a relevant unique feature of the hotel industry which only ABC was likely to address. It was for this quest that[16] conducted an ABC-based customer profitability analysis in an Irish hotel. The result of this work showed that the traditional costing method was not capable of addressing operational requirements where diverse services are rendered. He concluded that ABC was better in this regard. [17] posited after their study that although there was considerable knowledge of the theory of ABC, there was low understanding of how it might be used in hotels. This he emphasized was based on the envisaged shortcomings of ABC and the believe that it was only for manufacturing organizations. In the same vain[18] further affirms that there is little known about cost accounting and its use in tourism enterprises and especially hotels.[19] still reaffirm that there are rare studies on ABC in service industries especially hospitality industry. Rendering of service is very important because it enhanc...

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...ume resources and then links this cost to the services that are provided. Even though ABC system alone may not transform a business into a world-class competitor, it is an important tool to help world-class firms make effective strategic decisions. To[11], the use of ABC by organizations has led to increased profitability. This ABC system which is hereafter referred to as traditional ABC had some flaws which hindered most companies from implementing it. First, it took too long a time to implement the traditional ABC due to the complex nature of the activit ies performed within the organization[12]. Secondly, the system needed to be updated regularly, it became too expensive to re-interview and re-survey people engaged in the activit ies[12]. Thirdly, this system did not capture the complexity of the operation of many companies. It was these flaws that gave birth to a new costing method called time-driven ABC (TD-ABC) system to address those limitat ions as highlighted above. This does not mean the traditional ABC will be abandoned; it is an off-shoot of it intended to correct the envisaged flaws. Proponents of TD-ABC argue that it removes time-consuming and costly interviews which have...

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... it facilitates * Corresponding author: tazende@yahoo.com (Azende Terungwa) Published online at http://journal.sapub.org/ijfa Copyright © 2013 Scientific & Academic Publishing. All Rights Reserved managerial decisions that dovetail into total profitability of the business organization. Customer cost data help identify which one is profitable or not[1]. Companies that are able to understand and identify which customers are more profitable and which ones are not, are handy with valuable information needed to make successful managerial decisions to improve the overall organizational profitability[2]. Comparatively, the cost of acquiring a new customer is not the same with the cost of maintaining an existing one. In the words of[3], expense of finding a new customer in a service company is five times more than preserving current customer. It is however unwise to just keep a customer because the cost of finding a new one is more than the cost of preserving an existing one. The wise way out is to secure a valid customer cost information to ascertain how profitable he is to the business before the decision to keep h im or not comes to play. It is to this respect that[4] and[5], suggest that ...

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... costing system. It was an alternative to the traditional volume-based system. ABC approach assumes that either products or customers give rise to some activit ies, and these activities consume resources[9]. ABC therefore allocates costs of resources to the activities then the costs of activities are apportioned to cost objects by means of volume and non-volume related drivers[10]. Put differently, costs of activities are allocated to cost objects based on level of benefits usually called cost drivers. It is this cost drivers that serve as a link between activit ies and costs objects[9], [10];[11]. For the last two decades, ABC was introduced to enhance proper cost accumulation. The era of ABC led to the understanding that not every customer or product consumes the same level of act ivities and resources. It was the traditional costing system that uses arbitrary cost allocation of overhead costs. Thus, with ABC, managers are better equipped to understand cost causation and the ability to determine which customer is profitable or not hence better decisions. ABC rather than just listing cost factors and assigning them to products based on artificial allocations, it examines processes and...

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...tained but in agreement with resources so consumed. To[23], a resource is an economic element that is applied in the performance of activit ies e.g. salaries, materials etc. In a competitive economic environment these economic elements are scarce and therefore how much a unit of product or service consumes should be the base of ascertaining its costs. To[24] resources are used to perform activit ies, those activities are the real work carried out in an organizat ion and each unit of product or service requires unique activities which should be traced to it in arriving at cost of production. To[25] an activity is a value adding process which consumes resources. A unit of product or service is therefore a function of the activities performed and resource consumed. It is then truism to say that to know the true cost of a unit is the first step to total cost ascertainment or costing. A good costing system is therefore one that keeps track of the activities needed to complete each unit of product or service and the resources consumed by each activity. 2.3. The Traditional Costing System Over the years the most difficu lt task o f management is computing unit cost, the difficulty is in deter...

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...at[16] conducted an ABC-based customer profitability analysis in an Irish hotel. The result of this work showed that the traditional costing method was not capable of addressing operational requirements where diverse services are rendered. He concluded that ABC was better in this regard. [17] posited after their study that although there was considerable knowledge of the theory of ABC, there was low understanding of how it might be used in hotels. This he emphasized was based on the envisaged shortcomings of ABC and the believe that it was only for manufacturing organizations. In the same vain[18] further affirms that there is little known about cost accounting and its use in tourism enterprises and especially hotels.[19] still reaffirm that there are rare studies on ABC in service industries especially hospitality industry. Rendering of service is very important because it enhances value of the product. A product could cost the same but the International Journal of Finance and Accounting 2013, 2(6): 297-306 299 price or value o f that product varies proportional to the services rendered as that product gets to the final consumer. For example, a bottle of coke sold at road side kiosk w...

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...e to enhance the quality of their services, increase profit and remain competit ive. There are hotels all over Nigeria and there is need to nurture them v ia good management to grow and compete with other economies of the world by exporting their services. The traditional ABC mentioned above fell short as a good management tool because of the identified flaws which mit igated the adoption of this costing system even by big manufacturing companies. The continual search for a better costing system ushered in the TD-ABC and has been used in most manufacturing organizations and found to be useful.[20] points out that the conditions necessary for manufacturing firms to successfully implement ABC are necessary for service companies as well.TD-ABC can also succeed in the hospitality industry. Nigeria is currently pursuing vision 20-20-20. The vision is that by the year 2020, Nigeria will be one among the top 20 most industrialized nations of the world. The onus is on her to address key developmental issues like management of businesses that would help transform the economy for the better. Government efforts for enhancing the economy are sometimes frustrated because of the porous nature of our...

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...the cost of activ ities to those products or services associated with the resources consumed by those activities, hence preferable. To[29] several practical cases indicate that ABC can be of value for product pricing, production decision making, overhead cost reduction, and continuous improvement. To[30] An ABC approach uses multip le drivers to reflect how resources and activities are actually consumed which provides a more accurate assignment of cost than traditional cost systems that typically rely on a limited number of volume based measures, such as direct labour hours or sales volume. To[31] ABC is an examination of activities across the entire chain of value adding organizational processes. It unveils the underlying causes or drivers of cost and profits. To[32] ABC offers a workable and more effective insight into overhead allocation and recovery. It improves the quality of costs and management allocating information; it also gives managers a wider understanding of the economies of production. As many companies have acknowledged that while the improved products cost information provided by ABC is useful, its real power lies in its ability to identify cost reduction opportunities...

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...f this; allocations should vary with the quality or complexity of service. What then is the issue is how to track these activities involved in each service and the resources consumed by it to arrive at an accurate unit cost of service. The theory behind ‘cost drivers’ is the causal relat ionship between cost and the resources used by the service, contract or unit. There is therefore every need to unitize service cost[36]. Variable costs vary with change of activity and it is precisely this variation, and the activity that causes the variation, that gives rise to the search for cost drivers. To[37],[38] the broadening of product line increases a company’s power to compete in the market. It leads to higher market share and end performance. However,[37] is of the view that a company may lose its cost advantage at the same time if the operations are not well understood. Most hotels offer variety of services in order to satisfy their customers. This is the same as broadening product line which under normal circumstances should make the business profitable and grow b igger. Borrowing from[37]) that a company may lose its cost advantage as it expands, the researcher is of the opinion that bro...

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...f the view that a company may lose its cost advantage at the same time if the operations are not well understood. Most hotels offer variety of services in order to satisfy their customers. This is the same as broadening product line which under normal circumstances should make the business profitable and grow b igger. Borrowing from[37]) that a company may lose its cost advantage as it expands, the researcher is of the opinion that broadening of product/service line should be done wisely. In this case, TD-ABC system is a wise approach to consider along with the variety of services rendered. To[39] it is profitable to increase product variety by making more models out of one product. Which means increasing variety by making a similar product in the same size is unprofitable. Services offered by hotel businesses can differ, first to satisfy customers and secondly to make more profits. Profitability here is a function of the business to be able to get the accurate cost data of each unit of service by effectively allocating indirect cost. The hotel industry is critical to the economy and must be regarded as such. It is for this reason that the area is worth studying. 3. Research Methodolog...

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...intended to correct the envisaged flaws. Proponents of TD-ABC argue that it removes time-consuming and costly interviews which have been a major barrier to the implementation of tradit ional ABC system, as well as it allows cost driver rates to be calculated based on the practical capacity of the resources supplied[13]. There is more literature on ABC with respect to manufacturing companies as compared to service organizations.[14] asserts that, even though ABC has been applied in service firms such as health care and financial institutions, the use of ABC in the hotel or restaurant is scarce.[15] also echoes that the use of ABC in the hotel industry is limited. CPA was a relevant unique feature of the hotel industry which only ABC was likely to address. It was for this quest that[16] conducted an ABC-based customer profitability analysis in an Irish hotel. The result of this work showed that the traditional costing method was not capable of addressing operational requirements where diverse services are rendered. He concluded that ABC was better in this regard. [17] posited after their study that although there was considerable knowledge of the theory of ABC, there was low understandin...

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...erized with automation, product diversity and total overhead has increased to the point in some companies that a correlat ion no longer exist between it and direct labor. It is then clear that resources of an organization liker supervision, set-up, order cost and material handling costs for activities and transactions are unrelated to the physical volume of units produced. The quest for a more reasonable and detailed method of allocating overhead to unit cost continued until the emergence of ABC. The key idea of ABC is that, activities drive costs of any organization by consuming its resources[26]. The design of an ABC system rests on identifying the relat ionship between an indirect resource and the activity that causes it. Once that is done, the product or service cost is simply the cross product of the activit ies that were incurred to produce the product and the cost of activity. According to[27], ABC is concerned with the cost of activities within a company and their relationships to the manufacturer of specific products rather than to functional base. The basic technique of ABC is to analyze the indirect costs within a company and to discover the activities that cause those costs...

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... the activity that causes it. Once that is done, the product or service cost is simply the cross product of the activit ies that were incurred to produce the product and the cost of activity. According to[27], ABC is concerned with the cost of activities within a company and their relationships to the manufacturer of specific products rather than to functional base. The basic technique of ABC is to analyze the indirect costs within a company and to discover the activities that cause those costs. Such activities are called cost-drivers and can be used to apply overheads to specific products. To[28], a cost driver is an event associated with an activ ity that results in the consumption of the firms resources. Traditional cost accounting uses one cost driver (direct labor or machine hours) as the basis for allocating overhead costs, International Journal of Finance and Accounting 2013, 2(6): 297-306 301 and this can be inaccurate and misleading because it may apply too much cost to one product and not enough to another. ABC system achieves improved accuracy in the estimation of costs by using multip le cost drivers to trace the cost of activ ities to those products or services associated ...

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... control what you do not know or understand. It is for this reasons that a suitable costing system to obtain this informat ion is of prime importance to a successful business management. Accumulating proper cost data per customer is necessary because it facilitates * Corresponding author: tazende@yahoo.com (Azende Terungwa) Published online at http://journal.sapub.org/ijfa Copyright © 2013 Scientific & Academic Publishing. All Rights Reserved managerial decisions that dovetail into total profitability of the business organization. Customer cost data help identify which one is profitable or not[1]. Companies that are able to understand and identify which customers are more profitable and which ones are not, are handy with valuable information needed to make successful managerial decisions to improve the overall organizational profitability[2]. Comparatively, the cost of acquiring a new customer is not the same with the cost of maintaining an existing one. In the words of[3], expense of finding a new customer in a service company is five times more than preserving current customer. It is however unwise to just keep a customer because the cost of finding a new one is more than the cost o...

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...t © 2013 Scientific & Academic Publishing. All Rights Reserved managerial decisions that dovetail into total profitability of the business organization. Customer cost data help identify which one is profitable or not[1]. Companies that are able to understand and identify which customers are more profitable and which ones are not, are handy with valuable information needed to make successful managerial decisions to improve the overall organizational profitability[2]. Comparatively, the cost of acquiring a new customer is not the same with the cost of maintaining an existing one. In the words of[3], expense of finding a new customer in a service company is five times more than preserving current customer. It is however unwise to just keep a customer because the cost of finding a new one is more than the cost of preserving an existing one. The wise way out is to secure a valid customer cost information to ascertain how profitable he is to the business before the decision to keep h im or not comes to play. It is to this respect that[4] and[5], suggest that understanding how current customer relat ionships differ in profitability enables managers to make better managerial decisions. Thus, ...

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...zational profitability[2]. Comparatively, the cost of acquiring a new customer is not the same with the cost of maintaining an existing one. In the words of[3], expense of finding a new customer in a service company is five times more than preserving current customer. It is however unwise to just keep a customer because the cost of finding a new one is more than the cost of preserving an existing one. The wise way out is to secure a valid customer cost information to ascertain how profitable he is to the business before the decision to keep h im or not comes to play. It is to this respect that[4] and[5], suggest that understanding how current customer relat ionships differ in profitability enables managers to make better managerial decisions. Thus, knowing customers’ cost information is necessary to maintain profitable relations for service institutions and businesses like the hospitality industry[6]. Nevertheless, obtaining accurate customer cost informat ion about profitability is a function of an appropriate costing system. 298 Azende Terungwa et al.: Time-Driven Activity-Based Costing and Effective Business Management: Evidence from Benue State, Nigeria Competition has resulted to...

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...mer because the cost of finding a new one is more than the cost of preserving an existing one. The wise way out is to secure a valid customer cost information to ascertain how profitable he is to the business before the decision to keep h im or not comes to play. It is to this respect that[4] and[5], suggest that understanding how current customer relat ionships differ in profitability enables managers to make better managerial decisions. Thus, knowing customers’ cost information is necessary to maintain profitable relations for service institutions and businesses like the hospitality industry[6]. Nevertheless, obtaining accurate customer cost informat ion about profitability is a function of an appropriate costing system. 298 Azende Terungwa et al.: Time-Driven Activity-Based Costing and Effective Business Management: Evidence from Benue State, Nigeria Competition has resulted to an increased attention to the introduction of various products and services of high quality, all in an attempt to satisfy customer’s profitability. It takes resources of the organization to produce a product or service. These resources carry some cost and as they are consumed cost is incurred, regrettably th...

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...rettably, most companies are still using the same tradit ional cost accounting system that was developed decades ago. Traditional cost accounting methods do not accurately reflect the contribution of indirect cost to individual services. They pool all indirect cost and then allocate them to the various services in proportion to service volume of direct cost. This approach tends to over estimate the unit cost of high volume services and under estimate the cost of low volume services. Most studies dealt with the deficiencies of this traditional costing system in automated production environments[7];[8]. According to[9], the use of activity-based costing (ABC) enhances the traditional contribution marg in approach. ABC came as result of the continual quest for a better costing system. It was an alternative to the traditional volume-based system. ABC approach assumes that either products or customers give rise to some activit ies, and these activities consume resources[9]. ABC therefore allocates costs of resources to the activities then the costs of activities are apportioned to cost objects by means of volume and non-volume related drivers[10]. Put differently, costs of activities are a...

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...g system in automated production environments[7];[8]. According to[9], the use of activity-based costing (ABC) enhances the traditional contribution marg in approach. ABC came as result of the continual quest for a better costing system. It was an alternative to the traditional volume-based system. ABC approach assumes that either products or customers give rise to some activit ies, and these activities consume resources[9]. ABC therefore allocates costs of resources to the activities then the costs of activities are apportioned to cost objects by means of volume and non-volume related drivers[10]. Put differently, costs of activities are allocated to cost objects based on level of benefits usually called cost drivers. It is this cost drivers that serve as a link between activit ies and costs objects[9], [10];[11]. For the last two decades, ABC was introduced to enhance proper cost accumulation. The era of ABC led to the understanding that not every customer or product consumes the same level of act ivities and resources. It was the traditional costing system that uses arbitrary cost allocation of overhead costs. Thus, with ABC, managers are better equipped to understand cost causation...

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...d time-driven ABC (TD-ABC) system to address those limitat ions as highlighted above. This does not mean the traditional ABC will be abandoned; it is an off-shoot of it intended to correct the envisaged flaws. Proponents of TD-ABC argue that it removes time-consuming and costly interviews which have been a major barrier to the implementation of tradit ional ABC system, as well as it allows cost driver rates to be calculated based on the practical capacity of the resources supplied[13]. There is more literature on ABC with respect to manufacturing companies as compared to service organizations.[14] asserts that, even though ABC has been applied in service firms such as health care and financial institutions, the use of ABC in the hotel or restaurant is scarce.[15] also echoes that the use of ABC in the hotel industry is limited. CPA was a relevant unique feature of the hotel industry which only ABC was likely to address. It was for this quest that[16] conducted an ABC-based customer profitability analysis in an Irish hotel. The result of this work showed that the traditional costing method was not capable of addressing operational requirements where diverse services are rendered. He con...

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...ional costing method was not capable of addressing operational requirements where diverse services are rendered. He concluded that ABC was better in this regard. [17] posited after their study that although there was considerable knowledge of the theory of ABC, there was low understanding of how it might be used in hotels. This he emphasized was based on the envisaged shortcomings of ABC and the believe that it was only for manufacturing organizations. In the same vain[18] further affirms that there is little known about cost accounting and its use in tourism enterprises and especially hotels.[19] still reaffirm that there are rare studies on ABC in service industries especially hospitality industry. Rendering of service is very important because it enhances value of the product. A product could cost the same but the International Journal of Finance and Accounting 2013, 2(6): 297-306 299 price or value o f that product varies proportional to the services rendered as that product gets to the final consumer. For example, a bottle of coke sold at road side kiosk will most likely be priced less than the one sold at a five star hotel. It is clear therefore that services may not be easy to q...

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...n which management accountants can build up h is presentation of planning and control of operations. Costing enables a business not only to find out what various products or service have cost but also what they should have cost by unveiling where losses and waste are occurring. We are experiencing an ever changing business environment, these changes are a function of knowledge and informat ion we are exposed to. The development and use of informat ion especially cost management in formation is a crucial factor in the effective management of business operations. 2.2. The Concept of Unit Cost To[22] Unit cost is the average total cost of producing one unit of output. It is clear that each unit of product has unique demand on the resources of the organization. Resources cost money and as such the cost of a unit could not just be arbitrarily ascertained but in agreement with resources so consumed. To[23], a resource is an economic element that is applied in the performance of activit ies e.g. salaries, materials etc. In a competitive economic environment these economic elements are scarce and therefore how much a unit of product or service consumes should be the base of ascertaining its co...

Citation Context

...anging business environment, these changes are a function of knowledge and informat ion we are exposed to. The development and use of informat ion especially cost management in formation is a crucial factor in the effective management of business operations. 2.2. The Concept of Unit Cost To[22] Unit cost is the average total cost of producing one unit of output. It is clear that each unit of product has unique demand on the resources of the organization. Resources cost money and as such the cost of a unit could not just be arbitrarily ascertained but in agreement with resources so consumed. To[23], a resource is an economic element that is applied in the performance of activit ies e.g. salaries, materials etc. In a competitive economic environment these economic elements are scarce and therefore how much a unit of product or service consumes should be the base of ascertaining its costs. To[24] resources are used to perform activit ies, those activities are the real work carried out in an organizat ion and each unit of product or service requires unique activities which should be traced to it in arriving at cost of production. To[25] an activity is a value adding process which consumes ...

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...ost is the average total cost of producing one unit of output. It is clear that each unit of product has unique demand on the resources of the organization. Resources cost money and as such the cost of a unit could not just be arbitrarily ascertained but in agreement with resources so consumed. To[23], a resource is an economic element that is applied in the performance of activit ies e.g. salaries, materials etc. In a competitive economic environment these economic elements are scarce and therefore how much a unit of product or service consumes should be the base of ascertaining its costs. To[24] resources are used to perform activit ies, those activities are the real work carried out in an organizat ion and each unit of product or service requires unique activities which should be traced to it in arriving at cost of production. To[25] an activity is a value adding process which consumes resources. A unit of product or service is therefore a function of the activities performed and resource consumed. It is then truism to say that to know the true cost of a unit is the first step to total cost ascertainment or costing. A good costing system is therefore one that keeps track of the acti...

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... ABC is an examination of activities across the entire chain of value adding organizational processes. It unveils the underlying causes or drivers of cost and profits. To[32] ABC offers a workable and more effective insight into overhead allocation and recovery. It improves the quality of costs and management allocating information; it also gives managers a wider understanding of the economies of production. As many companies have acknowledged that while the improved products cost information provided by ABC is useful, its real power lies in its ability to identify cost reduction opportunities[33]. ABC has been extended from cost view to process view. That is to say according to[34] that ABC has moved from product costing to process improvement. This extension, enable managers to understand their organizat ions thereby enhancing the quality of their strategic decisions. 2.4.1. Problems/limitations of the Traditional ABC This traditional ABC was however more appropriate for pilot studies or department levels. Several problems arose when companies attempted to scale up this seemingly straightforward approach to cover the whole organizat ion. There was problem maintaining the model to ref...

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...or that new service. This time will be added to the Time Equation algorithm model of each customer characteristics and total time computed. Hotel businesses can estimate this Time Equation for the services they render to varying customers to enhance proper utilizat ion of resources in line with benefits derivable there from. 2.6. Activity Based Costing in Service Organisations The current accounting literature is filed with activ ity based costing articles about cost drivers in manufacturing settings but very few examples of cost driver applications in service organizations exist. According to[35], a number of the applications of cost drivers in manufacturing plants, however, involve service functions rather than manufactured product. Since cost driver and ABC concepts improve the cost measurement and allocation information for service departments within manufacturing firms, service businesses like hotels could also use cost driver and ABC concept. Services vary from one customer to the other, because of this; allocations should vary with the quality or complexity of service. What then is the issue is how to track these activities involved in each service and the resources consumed by ...

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...It will also work in other departments or service units of the hotel. Which means the whole hotel can apply it. To ascertain the percentage of application of TD-ABC in Nigerian hotels, a table and formula as below was adopted: Table 1. Possible Application level of TD-ABC Application Index/Percentage (%) Score Letter Grade Remarks 80.00 – 100.00 A TD-ABC strongly applied 60.00 – 79.99 B TD-ABC semi-strongly applied 40.00 – 59.99 C TD-ABC weakly applied 20.00 – 39.99 D TD-ABC very weakly applied 00.00 – 19.99 E Non-application of TD-ABC Source: Generated by the researcher with modification from[40] Questionnaires were issued to the twenty hotels to ask them if they have knowledge of TD-ABC and to ascertain those who are apply ing it. Th is was to enable the researcher use the following formula in conjunction with the above table to rate the level of application of TD-ABC in Nigeria. The formula is: Number of variablesAL= Maximum variables x 100 AL = application level of TD-ABC in Nigeria Number of variables = number of hotels that are applying TD-ABC Maximum variables = sample size (total number of hotels under investigation) With the help of interview with the staff of the sampled hote...