Research On The Improvement Of Activity-Based Costing

As an important cost accounting method, Activity-Based Costing(ABC) plays an increasingly important role in product pricing and profitability analysis and so on. However, ABC focus on operating cost and ignores capital cost, which result in the information provided by ABC only guarantees the realization of operating profit and can not reflect the value created by enterprise. Therefore, this thesis mainly studies on how to improve the limitation of ABC. Theoretically, this paper adds the capital cost into the accounting process of ABC to perfect the cost structure of it. Practically, being much more useful in decision-making, the improved ABC helps the administrators make the right business decisions by referring to the comprehensive and accurate cost information. What's more, it also helps administrators improve business performance and create more value for the enterprises.This paper mainly uses the standard researching method and case study method. This paper is divided into four parts. The first part analyses the limitations of ABC in depth and the result shows that ABC ignored the capital cost, as a result of which the cost information is not complete and not sensitive to enterprise's value creation. The second part makes an analysis on Economic Value Added (EVA)concept which shows that as an advanced method of performance evaluation, EVA stressed the capital cost and focused on corporate value creation. The two crucial concepts of EVA provide good reference to the improving of the cost structure and cost information of ABC. The third part points out the improved ABC and the calculation result of which is a real sense of the full cost, including both operating and capital cost. The fourth part is the implementation of the improved ABC with a specific case study, the results show that the improved ABC, on one hand, makes up the defect of traditional ABC which can not calculate the full cost, on the other hand, the cost information provided by improved ABC can reflect the enterprise's value creation.