Reasons behind the non-application of the activity based costing system in developing countries, case of Lebanon

Abstract

The Activity Based Costing (ABC) system, despite its spread in the developed countries and the recognition of its importance in the developing countries, is not adopted in the service industry in Lebanon while costing output. With the service industry contributing to more than seventy percent of the GDP in Lebanon, this makes it a subject of interest to justify the non-application of the ABC system in this sector. In this study, the authors seek to examine the reasons behind the reluctance of decision makers from applying the ABC system from the following perspectives: the lack of training of employees and the management’s support, the top management’s perception of the system’s high consumption of time and financial resources, the difficulty of collecting data, and the necessity to change the internal culture and the commitment of controllers. The study relies on prior research undertaken on this topic in different countries. A sample of 50 respondents from different service industries like banking, auditing, education and insurance provided the data of this study through answering the questionnaires and interviews. Two questionnaires are used; the first distributed to ABC system users and the second for non ABC users, also five interviews are conducted with senior level managers. The questionnaires are self-administered in order to increase the response rate, given the fact that the direct contact in the Lebanese culture proves to generate more efficient and effective data than the indirect contact. Hypotheses are developed stating the most significant reasons that are tested through survey and interviews. The data collected elaborates the companies’ point of view regarding the implementation of the ABC system as well as the employees’ and management’s personal opinions about it. The data is analyzed using the SPSS program and the results reveal that the real factors prohibiting the application of the ABC system are the lack of commitment of controllers and employees, the necessity to change the internal culture, the availability of financial and time resources and the satisfaction with the current costing system. The employees’ knowledge and training are not major obstacles in implementing the ABC, similarly for the difficulty in data collection about cost drivers. Other factors for this non-application appear to be the priorities of companies in other considerations, and the lack of technology. The outcome of the study provides a vital insight into the reasons behind such lag in the adoption of the ABC system in developing countries like Lebanon.