Costing systems play an important role in organisations by estimating the relevant costs assigned to their products and/or services. Costing systems which provide accurate cost information can improve the quality of decision making and, subsequently, non-financial and financial performance. Consequently, prior research has examined the influence of contingent factors on costing systems, and the influence of costing systems on business performance. Acquiring a thorough understanding of the impact of costing systems on business performance is critical to appreciating the most relevant factors that contribute to the success or failure of a business.
Previous research on costing systems that has been underpinned by contingency theory has failed to provide a complete picture of costing systems’ role due to the adoption of a selection form of fit approach. This approach only focuses on the effect of contingent factors on costing systems. It does not sufficiently address the issue of how organisational performance is affected by costing systems. In addition, little attention has been paid to activity management (AM) usage, including the extent to which activity-based costing (ABC) has been used. The term ‘ABC adoption’ is used to refer to whether a company decides for or against adopting ABC, and ‘AM usage’ relates to the way that ABC is practised. AM usage has been described as having three different levels of intensity: activity analysis (AA) usage, activity-cost analysis (ACA) usage and ABC usage. Understanding the extent to which AM is used is important in terms of identifying the factors influencing each level of AM usage. It is possible that some companies may adopt ABC on a temporary rather than a permanent basis; thus, despite not adopting ABC fully, they may be said to still consider using ABC, to some degree, in specific situations. Thus, it is possible to use ABC when it has not been adopted. In addition, some researchers have focused on the design of cost systems by measuring cost system sophistication (CSS). CSS provides a detailed measure for analysing cost systems, so that they can be located on a continuum that ranges from simple to highly sophisticated. However, previous research has been limited by inadequacies in the methods that have been used to measure CSS.
In response to the limitations of the existing literature, this research aims to employ more appropriate and comprehensive models by applying a mediation form of fit to test the influence of contingent factors on ABC adoption, AM usage and CSS, as well as to test the mediation role of non-financial performance factors between ABC adoption, AM usage and CSS, and financial performance in UK non-manufacturing companies. This study used a questionnaire with some supplementary interviews. The usable response rate is 10.95%. The results showed that competition had a direct and positive relationship with ABC usage and CSS, differentiation strategy had a direct and positive relationship with ABC adoption, and cost structure had a direct and positive relationship with ABC adoption and CSS. Service quality and cost reduction partially mediated the relationship between CSS and financial performance. In addition, cost reduction fully mediated the relationship between ABC adoption, ABC usage, and financial performance. The qualitative analysis endorses the quantitative results but also introduces contingent and performance factors that should be considered in future research.
This study contributes to the knowledge by understanding the complexity of the business environment by depicting the links and mechanisms between various contingent factors. It thereby creates a holistic model of these relationships. In addition, examining ABC adoption and AM usage independently in a single study is significant, as it serves to highlight the distinction between the concepts of adoption and usage, and to show that the way that one is influenced by the various factors may differ from the other.