Activity-based costing approach in the measurement of cost of quality in SMEe a case study

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Activity-based costing approach inthe measurement of cost of quality inSMEs: a case study

Serdar Özkan & Yasemin Zengin Karaibrahimo lu

a

a

Department of Business Administration , Izmir University ofEconomics , Turkey

Published online: 16 Aug 2012.

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TotalQualityManagement,2013

Vol.24,No.4,420–431,

http://www.77cn.com.cn/10.1080/14783363.2012.704286

Activity-basedcostingapproachinthemeasurementofcostofqualityinSMEs:acasestudy

¨zkanandYaseminZenginKaraibrahimog lu SerdarO

DepartmentofBusinessAdministration,IzmirUniversityofEconomics,Turkey

Sincethe1950s,aconsiderableamountofattentionhasbeengivenonthecostofquality(CoQ)intheoryandinpractice.Overall,itisarguedthataprecisemeasurementoftheCoQrequiresawell-establishedaccountingsystemthatprovidesaccuratecostinformation.However,intheliterature,itisgenerallyconsideredthattraditionalcostaccountingmethodsdonotprovideaccuratecostdataforthemeasurementofqualitycosts.Therefore,theaimofthisstudyistoexploretheroleofactivity-basedcosting(ABC)insupportingthemeasurementofCoQinsmallandmedium-sizedenterprisesinordertodiscusstheresultsofimplementation,itsbene tsanddrawbacks.Overall,itwasfoundthattheuseofABCintheCoQmeasurementprovidestheorganisationwiththemeanstodeterminebothvalue-addedandnon-value-addedquality-relatedactivitesandtodetectimprovementopportunitiesintheproductionprocess.

Keywords:costofquality;PAFscheme;activity-basedcosting;SMEs

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Introduction

Onewayofgainingacompetitiveadvantageintoday’schallengingbusinessenviron-mentistousequalityandcostasdifferentiatingfactors.Inordertoincreasecustomersatisfactionandthevalueoftheproducts/servicesdeliveredtothemarket,organisationsneedtobalancethequalityandcosts.Qualitycostsareconsiderablepartofacompany’stotalcosts(Giakatis,Enkawa,&Washitani,2001)andtheyareessentialfororganis-ationalperformance(Simga-Mugan&Erel,2000).Therefore,problemswithqualityarelikelytodamagebothcompetitivenessandreputationoforganisations.Kajdan(2007)indicatesthatorganisationsusedifferenttotalqualitymanagement(TQM)methods,suchaslabouranalysis,preventivequalitytoolsandeliminatingnon-value-added(NVA)activitiestoreducecostswithoutsacri cingquality.Costofquality(CoQ)isamongthosefundamentaltechniquesinTQM(Tsai,1998)andithasbecomeimportantfororganisations(Letza&Gadd,1994).CoQisusedasaprogressindicatorinmeasuringtheoverallperformanceoftheorganisations(Fassoula,2005),andifCoQisadequatelymeasuredandcontrolled,organisationsareabletogaincom-petitiveadvantage(Omurgonulsen,2009).Ingeneral,CoQisde nedasallresourcesemployedbyorganisationstoassurequalitystandards(Bohan&Horney,1991)andthusavoidlossesresultingfromfailure.

TherearetwostepsinCoQreporting:classi cationandmeasurement.Theclassi -cationofCoQdependsonthemodelsdeveloped,andmeasurementisresolvedbytra-ditionalcostaccountingvs.activity-basedcosting(ABC)methods.MeasuringCoQrequiresprecisecostinformationrecords.However,traditionalcostaccountingsystemsfailtoprovideaccuratecostinformationtomanagement(Yang,2008;Tsai,1998),

Correspondingauthor.Email:yasemin.zengin@ieu.edu.tr

#2013Taylor&Francis

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whichinturncausesadistortioninthemeasurementofCoQ.Oneofthereasonsforthede ciencyoftraditionalcostaccountingsystemsisthatthecost/expensecategorisationdoesnot twellwithCoQclassi cationmodels(Schiffauerova&Thomson,2006;Tsai,1998).Moreover,intraditionalcostaccounting,severalcostsareincorrectlyreported(Yang,2008)duetotheallocationoftheoverheadsusingasingledriverbasedonapre-determinedestimatedallocationrate.Traditionalcostallocationmethodsmaybesatisfac-torywhereoverheadallocationsarenotmaterial(Higgins&Young,2001).However,consideringthesigni canceofmanufacturingoverheadsinthecoststructureofcurrentproductionenvironments,itisimportanttousemoresophisticatedcostingmethodstoallo-cateoverheadsoverproducts/services.

Intheliterature,severalmodelshavebeendevelopedtoclassifyCoQ;theprevention–appraisal–failure(PAF)model(Feigenbaum,1956),conformanceandnon-conformancemodel(Crosby,1979),theopportunitycostmodel(Carr,1992),thetangible–intangiblemodel(Juran,Gryna,&Bingham,1975)andtheprocesscostmodel(Ross,1977).CoQclassi cationmodelsaremostlyactivity/processoriented(Schiffauerova&Thomson,2006).However,astraditionalcostaccountingdoesnotclassifycostelementsinaccord-ancewithactivity/processorientation,itcausesimprecisemeasurementofqualitycosts.

ABCwasdevelopedbyCooperandKaplan(1988)inordertoaccuratelyallocateover-headsandmitigatethedistortiononcostallocationandmeasurement,thusitisassumedtoovercometheshortcomingsoftraditionalcostaccounting(Higgins&Young,2001).Besidesitsapplicationincostaccounting,ABCisalsoproposedasasupportivecostingmethodinmeasuringCoQinqualitystudies(Schiffauerova&Thomson,2006).

Inthequalityliterature,studieshavebeenattemptedtomeasureCoQbothintheory(Weinstein,Vokurka,&Graman,2009;Schiffauerova&Thomson,2006;Freiesleben,2004;Tsai,1998;Feigenbaum,1956;Juran,1951)andinpractice(Fassoula,2005;Mukhopadhyay,2004;Krishnan,Agus,&Husain,2000;Simga-Mugan&Erel,2000;Keogh,Brown,&McGoldrick,1996;Carr,1992;Bohan&Horney,1991).Nevertheless,intheaccountingliterature,thereisaverylimitednumberofstudiesconcerningthemeasurementandreportingofCoQ(Williams,vanderWiele,&Dale,1999).Omurgonul-sen(2009)arguesthatonepossiblereasonforthisisthebeliefthatqualitycannotbemeasuredintermsofcost.AnotherimportantreasonmaybetheuseoftraditionalcostaccountingsystemintheCoQmeasurement.Therefore,inordertogatheractivity/process-orientedcostinformationwhichsupportsCoQmeasurement,theABCapproachisproposedintheliterature(Tsai,1998).Moreover,MandalandShah(2002)claimthatqualitycostscanbemeasuredthroughteamworkundertheresponsibilityofbothaccount-ingandqualityprofessionals.

Itislikelythatthebene tsofTQMandCoQreportingarelessunderstoodbysmall-andmedium-sizedenterprises(SMEs)(Desai,2008).Primarily,thismightbeduetotheslowimplementationofTQMinSMEs(Ghobadian&Gallear,1996).Additionally,theoveralleffectofawell-establishedTQMonbothoperatingand nancialperformancemaynotbeapparentintheshortrun.Thus,especiallyinthecaseofresult-orientedSMEs,themanage-mentmaychoosenottomeasurequalitycosts.Anotherpotentiallyimportantfactoristheirlackofsophisticatedaccountingsystemsandcostmanagementtoolsduetohigherinitialcosts.ThisreluctanceofSMEstoaccountforCoQissupportedbythefactthatmostpreviousresearchonCoQimplementationrelatestolarge,pro t-orientedorganisations.

SMEsarecharacterisedas exible,innovative,opentochange,operatinginhighlycompetitivemarketsandtheyconstitutelargeportionoftotalenterprisesintheworldeconomy.Therefore,themotivationofthisstudyoriginatesintheeconomiccontributions

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ofSMEs,thevalueofCoQmeasurementincompetitivebusinessenvironmentandthelack

ofthestudiesontheimplementationofCoQinSMEs.

Inlightoftheabovearguments,themainaimofthisstudyistogainacomprehensiveunderstandingofthemeasurementandreportingofCoQunderABCusingacasestudydevelopmentinasmallenterprise.

Abriefsummaryofthisstudyisasfollows:theCoQliteratureisreviewed,theuseandsupportofABCinmeasurementCoQisexplainedandthecasestudyispresented,respect-ively.Finally,the ndingsofthecasestudyaresummarisedwiththeemphasisontheimportance,theadvantagesandtheroleofABC/CoQmodelinallorganisations,includingSMEs.

Costofquality(CoQ)

CoQwas rstintroducedin1951underthenameofthe‘costofpoorquality’byJuran,whode nesitas‘thesumofallcoststhatwoulddisappeariftherewerenoqualitypro-blems’(Juran,1951).BohanandHorney(1991)de neCoQas‘thetotalofallresourcesspentbyanyorganizationtoassurethatqualitystandardsaremetonaconsistentbasis’.Inabottomlineview,thequalitycostsarethelossofpro tandthereforecalled‘goldinthemine’(Su,Shi,&Lai,2009).Inthepast,qualitycostswereassumedtobeonlyrework,repairandwarrantycosts(Williamsetal.,1999;Giakatisetal.,2001,Keoghetal.,1996).However,theCoQperspectivehasdevelopedovertheyears,andseveralmodelshavebeendevelopedtoclassifyandreportCoQ.

AmongotherCoQmodels,Feigenbaum’s(1956)PAFmodeliswidelyacceptedin

o-Lopes,2011).ThisstudymakesuseofPAF,inqualitymanagement(Branca&Catala

whichthequalitycostsarecategorisedasPAF.Preventioncostsareallthoseincurredinordertopreventfailureandensurethequalityofproduct/services.Appraisalcostsareallmeasuringandtestingcostsexpensedinordertopreventfailure.Failurecostsarethoseincurredtocorrectthequalityofproduct/services;dividedintotwogroups,internalandexternalfailure.Theformerarecorrectioncostsoccurringbeforethedeliveryofproduct/services,whilethelatterarethoseoccurringafterthedelivery.Duetointer-relationsamongCoQcategories,itisassumedthatinvestmentinpreventionandappraisalactivitiesismorelikelytodecreasethecostoffailure.Inasimilarmanner,investmentsinpreventionactivitiesarealsomorelikelytoresultinareductionintheappraisalcosts.

Althoughwellknowninthequalityliterature,somearguethatthePAFmodelanditsCoQcategorisation,asprevention,appraisalorfailure,isinitselfde cientinthemeasure-mentofqualitycostsandshouldberevised(Chiadamrong,2003;Dahlgaard,Kristensen,&Kanji,1992).SuchacriticismhaslongbeendirectedbytheusersofthePAF/traditionalcostaccountingmodel,wheretheclassi cationofindirectcosts(overheadssuchasdepre-ciationandutilities)createsdif culties.Tsai(1998)enlightenstheissuebyarguingthatthelackofunityintheallocationofoverheadstoCoQcategoriesleadstofailureinidentifyingthesourceofqualitycosts.AsaresultoftheuseofPAF/traditionalcostaccountingmodels,forallpracticalpurposes,CoQhasbeenseenasimpossibletomeasure(Chiadamrong,2003;Yang,2008).

Activity-basedcosting(ABC)

ABCisacostaccountingmethodthatidenti estheactivitiesinvolvedintheproductionandtheresourcesconsumedbyeachactivityinordertoproperlyallocateactivitycostsoverproduct/services.AnABCmodelisdifferentfromtraditionalcostaccountingin

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termsofoverheadallocation(Cooper&Kaplan,1988).Traditionalcostaccountingischaracterisedby(i)absorptionofoverheadsintothecostoftheproducts/servicesand(ii)allocationofoverheadcoststoproduct/servicesusingasingledriverbasedonapre-determinedestimatedallocationrate.Therefore,itcouldbedescribedasacostingmethodwhichisnotsophisticatedenoughtodetermineproduct/servicecostsprecisely.ABCisatwo-stagemethodology; rst,itassignstheresourcestoactivities,thentocostobjectsusingadifferentcostdriverforeachactivity.

CoQmeasurementunderABC

Intraditionalcostaccounting,themeasurementofCoQstartswiththeidenti cationofeventscausingpoorquality,andmatchingthemwithrelatedqualitycostsunderthePAFscheme.Inthesecondstep,withinthecost/bene tapproach,thefrequenciesandresourcecostsofthoseareusedtodeterminewhethertheseeventsoccursystematicallyandareworthmeasuringregularly,orwhethertheyareone-timeevents.Allocationofindirectcostsoneachqualitycostcategoryisheavilydependentonestimationsbyman-agers,usingasinglecostdriver.

CoQ/ABC,asanalternativecostingmethodovercomesthede cienciesoftraditionalcostaccounting,byanalysingtheactivitiesoftheproductionprocess,determiningthecostsoftheresourcesconsumedbyeachactivityandallocatingactivitycostsusinganappropriatecostdriverforeachquality-related(accordingtoPAFscheme)andquality-unrelatedcost.

CooperandKaplan(1988)developedABCasasophisticatedcostingmethodwhichenablescostassignmentsbyeliminatingwastethroughNVAactivitiesandidentifyingopportunitiesforimprovement.Inotherwords,ABCalsosupportsqualityimprovementstoovercomethede cienciesthatorganisationsface(Maiga&Jacobs,2008).Inordertoimprovequality,ABCprovidesinformationintherecognitionofactivitiesthatcausepoorquality(Carol ,1996)byclassifyingallactivitiesaseithervalue-added(VA)orNVA.Accordingtothiscategorisation,VAactivitiesarethosethatcontributetothevalue(increasethequalityandeffectivenessoftheuse)oftheproduct/servicesdelivered.AsNVAactivitiesmakenocontributiontothevalueoftheproduct/services,theireliminationdecreasestherelatedcostsandhasnoeffectonthevalueoftheproducts/services.

IntheCoQ/ABCframework,ABCandCoQuseacommondatabaseinordertopromoteproductivity,eliminatewaste,reducecostsandimprovequality(Tsai,1998).

TheCoQ/ABCframeworkissummarisedinFigure1.

The rststepinCoQmeasurementunderABCistheactivityanalysisandcategoris-ationofactivitiesasVAorNVA.Inthesecondstep,eachactivityofABCiscategorisedasquality-relatedorquality-unrelatedactivitiesusingthePAF.Inthethirdstep,resourcecosts(includingoverheads)aretracedtoquality-relatedandquality-unrelatedactivities.Wheretheresourcesareusedinasinglequality-relatedactivity,theyaretraceddirectly,andwhereusedinseveralactivities,theyareassignedamongtheactivitiesusingaresourcedriver.CoQismeasuredasthesumofthecostsofquality-relatedactivities.Afteractivitycostsarecalculated,theyaretracedtocostobjectsusingactivitydrivers.Casestudy

¨zcTQMincreasesef ciencyandproductivityinorganisations(Aslan&O¸elik,2009).

Therefore,SMEsneedtofocusonqualitymanagement(Kuratko,Goodale,&Hornsby,2001).However,inpractice,becauseofinformationde cienciesorinaccurateaccounting

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Figure1.CoQcategorisation:ABCapproach.

andcostingsystems,mostSMEsareunlikelytousequalitymanagementtoolsandtech-niqueseffectively.Inthispaper,followingTsai(1998),CoQmeasurementunderABC

wasimplementedinasmallengineeringcompanyinordertoanalysetheresults,bene tsanddrawbacksassociatedwiththismethod.

Thecompanyselectedforthecasestudyisasmallassembly-orientedengineeringcompanythatproduceshigh-pressuretesting(HPT)andhydraulicpower(HP)unitstoorder.Inadditiontostandardisedproducts,customisationsarealsomadeinaccordancewithdemand.

Asindicatedpreviously,teamworkwiththeactiveparticipationofmanagersandemployeesisrequiredfortheaccuracyoftheCoQmeasurementandqualitymanagement.Across-functionalteamwasthereforeformedtocarryouttheCoQanalysisinthecompany.TheimportanceofCoQmeasurementandthedetailedplanoftheimplemen-tationwerepreviouslyexplainedtotheteam,allotheremployeesandproductionmanager.Previously,theorganisationhadnowell-establishedcosttracingsystemandactivityanalysisinproduction.Therefore,inthe rststep,toensuretheaccuratemeasure-mentofCoQinthemanufacturingdepartment,anactivityanalysiswascarriedout.NineactivitiesareundertakenintheprocessofmanufacturingHPTandHPand veemployeesworkinthemanufacturingdepartment;anengineer,atechnicianandthreeworkers.Theengineerworksonthedesignofthecustomers’demandspeci cationsfortheproductandtestsofthe nishedproducts.Thetechnicianworksondrawing,inspectionofthematerialsused,anyreworkresultingfrominternalfailure,testingofthe nishedproductsandonmaintenanceactivities.Workerscarryoutmachining,warrantyrepairandmaintenanceactivities,butalsoassisttheengineerandtechnicianinotheractivities.Theproductionprocessstartswiththedesigningactivity,wheremodelspeci cationsarecustomised.Afterthedesign,technicaldrawingsoftheunitsarecreatedinordertoidentifytheoper-atingcycleoftheunitanddeterminethematerialrequirement(inputs)fortheproduction.Followingthis,duringthematerialhandlingactivity,materialsaremovedtotherelevantunitsforstorageuntiltheyareassembled.Beforetheassemblyactivity,the

main

TotalQualityManagement425

componentsoftheunitsaretestedforquality.Thenextstepismachiningactivity,inwhichmaterialsareprocessedthroughgeneral-purposemachinesasapreparationforassembly.ReworkandwarrantyrepairactivitiesareNVAinternalandexternalfailureactivities,respectively.Ifanyfailurerelatedtotheworkingsystemoranydefectassociatedwiththematerialisdetectedduringtheproductionprocess,theproductisreworked.Iftheproductisreturnedaftersalesbecauseofanyfailurerelatedtooperatingbreak-downs,itisrepairedunderwarranty.Inthetestingactivity,productsaretestedinordertopreventfailureaftersale.Themaintenanceactivityisnotassociatedspeci callywiththeproducts,butratherinvolvesthemaintenanceofthemachinesusedinthemanufactur-ingarea.However,thisactivityisanessentialstepintheprocessofpreventingquality-relatedfailureinproduction.

Oncetheactivitiesaredetermined,inthesecondstep,theyareclassi edasVAorNVAaccordingtoABCandquality-relatedorquality-unrelatedaccordingtothePAF.Inspection,rework,warrantyrepair,testingandmaintenanceactivitiesarecategorisedasquality-relatedactivities.Amongthese,onlymaintenanceisaVAactivityformanufac-turing.Table1presentsthedetailsofactivitiesandtheircategorisationunderPAFandABCincludingtheactivitydrivers.

Thecompanyproduced5unitsofHPTand12unitsofHPforthemonthinwhichthecasestudycarriedout.Inthethirdstep,inordertomeasureCoQ,resourcecostsareassignedtoquality-relatedandquality-unrelatedactivities,usingtheinformationfromtheactivityanalysisandtheresourcedrivers.ThedetailsofthelabourcostsforeachemployeebythemanufacturingactivitiesaregiveninTable2.Eachemployeeworks176hourspermonth,withanaveragewageofE6.11perhourforengineers,E2.55forworkersandE4.12fortechnicians.

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Table1.ActivityanalysisinaccordancewithPAFandABC.

Activitydriverquantity

ActivitiesDesigningDrawingMaterialshandlingInspectionMachiningReworkWarrantyrepairTesting

ActivitydriversLabourhoursLabourhoursNumberofmovesNumberoftests

MachinehoursNumberofreworksNumberofwarrantyrepairsNumberoftestsfor nishedproductsMachinehours

EmployeesEngineer,technicianTechnicianWorkersTechnician,workersWorkersTechnician,workersWorkersEngineer,technicianWorkers,technician

ABCcategoriesVAVANVANVAVANVANVANVA

PAFscheme–––Appraisal–InternalfailureExternalfailureAppraisal

HPTfor5units8.504.501020177.001110

HPfor12units3.001.001236219.60––12

MaintenanceVAPrevention11.5025.20

¨zkanandY.ZenginKaraibrahimog lu426S.O

Table2.

Labourhoursusageandcostassignmenttoactivities.

EngineeraTechnician

ActivitiesDesigning

DrawingMaterialhandlingInspectionMachiningReworkWarrantyrepairTesting

MaintenanceIdleTotal

No.111.50

No.211.505.50

8.60

76.006.002.00

108.00

36.0036.702.30176.00

96.0068.4011.60

164.502.00

168.00

No.3

No.4

WorkersNo.522.66

8.6096.00400.9013.60

21.93557.921022.3059.408.24808.20171.6011.772801.67

Totallabourhoursofworkers

Totallabourcostsb117.65

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8.00

0.90

176.00176.00

176.00

8.000.90528.00

119.50

Note:aTheengineerspenttheremainderoftheworkingtimeonothernon-manufacturingresponsibilitiesintheorganisation.b

Eperhourforworkers:E2.55;pertechnician:E4.12;perengineerE6.11.

Bothoftheproductsareprocessedthroughthreegeneral-purposemachinesonanassembly-orientedproductionline.Thesemachinesareusedinmachining,rework,war-rantyrepairandtestingactivities.TheaveragemachinecostisE17.00perhour.TheworkinghoursofthemachinesusedintheactivitiesaregiveninTable3.

Inthefourthstep,activitycostsaretracedtocostobjects,HPTandHP,usingactivitydrivers.Table4presentsthecostofeachactivity,thecostandactivitydriverinformationandunitproductscosts.

Inthe nalstep,usingthecostinformationprovidedinTable4,aCoQreportforthemanufacturingdepartmentisprepared(Table5).Thereportpresentsthecostfordirectmaterialsandactivitiesseparately.Inaddition,bothtotalVAandNVAcostsarereportedintermsofqualitycostcategories.Intheproductionprocess,while50.32%ofthecostofHPTand29.08%ofthecostofHPconstitutesthecostofthedirectmaterial,theremaining49.68%and70.92,respectively,constitutethecostofactivities.ForHPT,ofE5640.22totalactivitycosts,E3571.88isVA,whichis31.46%oftotalproductcosts.Similarly,forHP,ofE6401.92totalactivitycosts,E4386.64isVA,whichis48.60%oftotalproductcosts.

Inthesamemanner,totalCoQisE2112.26forHPTandE2121.34forHP,18.60%and23.50%oftotalproductcosts,respectively.Table5alsoshowsthattotalNVAcostis

Table3.ActivitiesMachiningRework

WarrantyrepairTestingIdleTotal

Machinecostassignmenttoactivities.

Totalmachinehours

389.7028.003.0062.0045.30528.00

(E)perhour17.0017.0017.0017.0017.0017.00

Totalmachinecosts(E)

6624.90476.0051.001054.00770.108976.00

TotalQualityManagement427

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Table4.

Activitycostassignmenttoproduct.

¨zkanandY.ZenginKaraibrahimog lu428S.O

Table5.

CoQreport.

Manufacturingdepartment–CoQreport

HPT(5units)

ABC

categories

Directmaterialscosts

ActivitycostsDesigningDrawing

MaterialhandlingInspectionMachiningReworkWarrantyrepair

CoQcategories

InEuro(E)5714.00

VAVANVANVAVANVANVA

–––Appraisal

–InternalfailureExternalfailureAppraisalPrevention

86.9618.549.90411.403412.56535.4059.241052.4053.825640.2211,354.222270.843571.882068.342112.26E422.45

(%)

HPT(12units)inEuro(E)

(%)(29.08)(0.34)(0.05)(0.13)(8.20)(46.90)––(13.99)(1.31)(70.92)(100)(48.60)(22.33)(23.50)

(50.32)2625.00(0.77)(0.16)(0.09)(3.62)(30.06)(4.72)(0.52)(9.27)(0.47)(49.68)(100)752.24(31.46)(18.22)(18.60)

30.694.1211.88740.524233.89

–

–1262.88117.946401.929026.924386.642015.282121.34E176.78

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TestingNVAMaintenanceVATotalactivitycostTotalproductcostUnitproductcostTotalVAcostTotalNVAcostTotalCoQ

TotalCoQperunit

E2068.34forHPTandE2015.28forHP,thatis,18.22%and22.33%oftotalproductcostsconsistofNVAactivities.

Inspection,rework,warrantyrepair,testingandmaintenanceactivitiesarequality-related,whereinspection,testingandreworkactivitiesarethreehigh-costquality-relatedandNVAactivities(Tables4and5).Therefore,initialattentionshouldbepaidtothesethreeactivitiestoseekanyimprovementopportunity,thusreducethecostoftheproducts.

ProsandconsintheimplementationofCoQ/ABC

ResearchindicatesthatTQMisvaluablefortheoverallperformanceofanorganisation(Terziovski&Samson,2000).InspiteofthecapitallimitationsofSMEs,qualitymanage-mentcouldbeappliedsuccessfullywiththeuseofavailableresources(Ahire,Golhar,&

´nez-CostaandJime´nez-Jime´nez(2009)recommendSMEstoinvestWaller,1996).Mart

inqualitymanagementtools,whichcouldincreasetheproductivityandcompetenceoforganisations.CoQisessentialinqualitymanagementandcouldbeappliedbySMEsinordertomanagecoststhroughcontrollingthecostofpoorquality.

ThemeasurementofCoQrequirestheactiveparticipationofaccountants,productionengineersandqualityprofessionals.InmostSMEs,duetolimitedresources,qualityassur-anceisincludedintheresponsibilityofproductionengineersormanagers.Intheorgan-isationwherethecasestudywasconducted,theengineerandtechnicianwerealsoresponsibleforqualitycontrol.Inordertominimiseresistancetoqualitymanagement

TotalQualityManagement429

practices,beforetheimplementation,thegeneralframeworkofthestudy,possiblebene tsandburdensofthismanagementapproach,andchangesintheworkofemployeesandworkerswereexplainedindetail.

ThroughouttheCoQ/ABCimplementationinthecompany,sinceitisthe rsttimeofapplyingABCandCoQmeasurementandreporting,severalmanagementissueswereraised.Asexpected,duringtheactivityanalysisandclassi cationofactivitycostsasquality-relatedandquality-unrelated,therewasstrongresistancetochangefromtheaccountingandproductiondepartments.AstheoutcomesofamoresophisticatedcostingmethodandaCoQreportcannotbederivedintheshortterm,theseissueswereexplainedindetailtominimisethisresistance.Themanagement’swillingnesstocontrolqualitycostsfacilitatedtherecognitionoftheproposedcostingandqualityman-agementmethodsbytheemployees.Inaddition,sizewasanotherfactorthatfacilitatedchange.Asthecompanyisasmallenterprise,thechangewasmanagedmoreeasily.ThroughouttheimplementationofCoQ/ABC,duetothelackofadatabase,acomprehen-sivestudywascarriedouttogathercostinformation.

TheCoQreportprovidedseveralconsiderableadvantagestothecompany.First,withtheuseofCoQ/ABC,theactivitiesandassociatedcostswereclassi edasquality-relatedorquality-unrelatedandVAorNVAintermsofactivities.Thisclassi cationallowsman-agementtodetecttheopportunitiesforcostreductionandtheeliminationofNVAactivi-tieswhichcouldbeusedincostmanagementwhileimprovingthequalityoftheproduct.Second,themeasurementandreportingofCoQprovideopportunitieswhichcouldbeusedbytheorganisationaslong-termperformancemeasurements.Finally,theCoQreportpre-sentsthecostofeachproductbyactivityandqualitybasis,whichcouldbeusedtocomparethecontributionofeachproducttothecompany.Discussionandconclusion

TQMandCoQhavebecomestrategicmanagementissuesbothforacademicsandprac-titionerssincethe1950s.Inthequalityliterature,thereareseveralstudiesattemptingtomeasureCoQbothintheoryandpractice;however,thenumberofsuchstudiesintheaccountingliteratureisverysmall.Theattemptstocorrectqualitywithcostinformationarerare,duethedif cultiesencounteredinthemeasurementofCoQundertraditionalcostaccountingmethods.Moreover,somestudiesasserttheimpossibilityofmeasuringqualitycosts.Inaddition,TQMandCoQmeasurementsareusuallypresumedtobestrategictoolsforlargerorganisations.However,consideringthatmanySMEsare exible,innovative,opentochange,operateinhighlycompetitivemarkets,andconstitutealargeportionofthetotalenterprisesintheworldeconomy,thisstudyaimstoexploretheroleofABCasanalternativecostingmethodinsupportingthemeasurementofCoQfortheseorganisations.

TheresultsofthecasestudyshowthattheuseofABCfacilitatesmeasuringandreportingCoQbydetectingNVAquality-relatedcosts.TheCoQreportunderABCpro-videsorganisationwiththeopportunityforimprovingcostandqualitycontrol,andthere-forecompetitiveness,andithasbeenshownthatCoQmeasurementunderABCcanbeeffectivelyusedbysmallenterprises.

ThisstudyalsosuggestthatwiththeuseofCoQ/ABC,organisationsmaybeabletodetectandmonitortheareasofpoorperformancethatrequireimprovement,controlandmanagequality-relatedcostsand,consequently,gaincompetitiveadvantagebyimprovingthequalityandreducecosts.Overall ndingsofthecasestudyareincompliancewithPrickettandRapley(2001),Bottorff(1997)andWeinsteinetal.(2009).

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¨zkanandY.ZenginKaraibrahimog lu430S.O

Whilethe ndingsofthestudystemfromasinglesmallenterprisecase,itshouldbe

notedthatthese ndingsarestillgeneralisable,becausetheproposedmethodologyofCoQ/ABCisnotsolelydesignedforsmallenterprisesandcanbeimplementedbyawiderangeoforganisationtypesregardlessofsize,andwhetherforpro tornonpro t.

ThecasestudyalsoshowedthatthesuccessofABC/CoQimplementationdependsonanawarenessofCoQ,andunderstandingoftheprocess/activityviewintheorganisation,strongcommunicationbetweentechnicalandaccountingpersonnel,ahighlevelofman-agerialsupportandinvolvement,andawell-organisedcross-functionalteam.

Themainlimitationofthestudyisitsnarrowfocusonmanufacturing-relatedCoQ.ItisclearthatCoQmeasurementshouldincludetheanalysisofallkindsofactivitiesinanorganisation.Thus,furtherresearchmayconsiderbothmanufacturingandnon-manufac-turingactivitiesoftheorganisationsinordertoprovideorganisation-wideCoQinfor-mation.Moreover,studiesconcerningserviceorganisationsalsohavethepotentialtomakeavaluablecontributiontotheCoQliterature.References

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