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Abstract
Purpose - There is the potential to improve the competitive performance of small to medium-sized companies (SMEs) particularly in the UK clothing and textile industry, a sector of the economy that has had little exposure to activity-based costing and activity-based management (ABC/ABM).
Design/methodology/approach - A review of the current literature relating to ABC/ABM was made, with reference to its poor take up amongst SMEs and those in the clothing and textile manufacturing sector particularly. A case study was undertaken to test the theories and assumptions in the context of SMEs in the clothing and textile industry.
Findings - The case study showed that there are opportunities to improve the profitability of SMEs if the findings were transposed to other similar businesses willing to invest the time and effort into setting up an ABC/ABM system.
Research limitations/implications - There is the opportunity for further research in other areas of business activity in the fashion industry.
Practical implications - This is a practical application of a financial management tool that would be useful to academia, managers in SMEs in the clothing and textile industry, government planners looking for ways to increase profitability for UK firms.
Originality/value - The paper takes an existing well-known financial tool and examines its use in an area of the economy with little or no previous exposure to its benefits.
Keywords Activity based costs, Clothing, Activity based management, Textile industry, Small to medium-sized enterprises, United Kingdom
Paper type Conceptual paper
Introduction
Hussein and Gunasekaran (2001) commented on the rapid advancement of information technologies and global competition that have helped make conventional management accounting systems irrelevant.
Gering (1999) supported this arguing that traditional accounting has a tendency to provide information that though accurate is often late, irrelevant and misleading.
Traditional management accounting systems (TMAS) were mainly developed to serve the accountancy function not the needs of the decision makers in the firm. Activity-based costing (ABC) popularised by Kaplan and Cooper in the 1980s can be described as a methodology, which enables the financial information in the firm to be used for active decision-making. This is activity-based management (ABM).
This paper explores the concept of ABC/ABM and questions its application by small to medium-sized companies (SMEs) engaged in manufacturing clothing and textiles in...