A critical review on application of activity-based costing in the construction industry

Jaya, NM; Pathirage, CP; Sutrisna, M

Abstract

Activity-Based Costing (ABC) has been around for more than two decades and challenges the relevance of simplistic traditional costing practice. Academics and practitioners together in institutions such as the Consortium for Advanced Management-International (CAM-I), the Chartered Institute of Management Accountants (CIMA), and so on are playing an important role in popularising the ABC system worldwide. The fundamental concept underpinning philosophy of the ABC method highlights that organisations to produce products and services require performing activities, and those activities cause the organisations in incurring costs. The Royal Institution of Chartered Surveyors (RICS) indicated that overhead and profit is added on percentage basis of main contractor’s building work and preliminary estimates. It appeared from the literature study that this percentage basis may not provide reliable baseline for planning and controlling project overheads in the construction stages. This paper aims to explore and critically discusses the drivers, barriers, challenges, benefits, and further research possibilities on application of the ABC system in the construction industry. Through a thorough literature review, it highlights the potential of the system in implementing sophisticated cost drivers and proves its excellences in assigning accurate overheads to increase project cost control by showing insight to cost cause-and-effect relationships between overheads, project activities, jobs, products and services.

Keywords: activity-based costing, cost planning and controlling, overheads, construction industry.

Citation

Jaya, N., Pathirage, C., & Sutrisna, M. (2010, May). A critical review on application of activity-based costing in the construction industry. Presented at CIB World Congress 2010, The Lowry, Salford Quays, United Kingdom

• Presentation Conference Type: Other
• Conference Name: CIB World Congress 2010
• Conference Location: The Lowry, Salford Quays, United Kingdom
• Start Date: May 10, 2010
• End Date: May 13, 2010
• Deposit Date: Dec 14, 2010
• Additional Information: Event Type : Conference