Activity Based Costing (Abc) Model for Higher Education Institutions: A Basic Guide to the Model Development

By Jamalludin Helmi Hashim

ACTIVITY BASED COSTING (ABC) MODEL FOR
HIGHER EDUCATION INSTITUTIONS:
A BASIC GUIDE TO THE MODEL DEVELOPMENT

The rise of operating costs in Higher Education Institution all over the world forced concerns universities management to adopt a better costing system, i.e. Activity Based Costing (ABC). As evidently proven in many other setting, the benefits of ABC shall also apply to the higher education institutions (HEI) setting.

The book presents a basic and step by step guide of the ABC model development process in HEI, which consist of three cost objects including Teaching and Learning, Research and Professional and Community Service. It also concludes the candidates of the possible “drivers” (resources drivers and activities drivers) which determine the accuracy of cost figure for every “cost object” in HEI and as a starting point towards the success.

• Language: English
• Publisher: Partridge Publishing Singapore
• Release date: Oct 28, 2019
• ISBN: 9781543745856

Jamalludin Helmi Hashim

ASSOCIATE PROF DR HASHIM, JH is Head, Research and Consultancy at University of Sultan Azlan Shah (USAS), Kuala Kangsar Perak MALAYSIA. He is an internationally recognised expert, speaker and researcher in the area of Management Accounting (and Strategic), Costing and Public Sector Accounting. Hashim, JH can be reached at [e-mail].

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Copyright © 2019 by Jamalludin Helmi Hashim.

ISBN:      Softcover      978-1-5437-4586-3

                eBook            978-1-5437-4585-6

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TABLE OF CONTENTS

Preface and acknowledgement

Chapter 1   Introduction

1.1   Introduction

1.2   Management Accounting versus Financial Accounting

1.3   Management Accounting

1.3.1   Definitions and nature of

management accounting

1.3.2   Functions and scope of

management accounting

1.3.3   The management accountant

1.3.4   Functions of management accountant

1.3.5   Management accounting and

financial accounting

1.3.6   Cost Accounting and management accounting

1.3.7   Limitations of management accounting

1.4   Cost and Costing system

1.4.1   What is costing

1.4.2   Costing system

1.5   Problem with existing costing system

1.6   Management Accounting in Higher Education Institutions (HEI)

1.7   Why higher education institutions concern about cost?

1.8   Objectives of the book and the organization of chapters

Chapter 2   Activity Based Costing (Abc)

2.1   The definition and concept of ABC

2.1.1   ABC vs ABM vs ABB

2.2   Traditional Costing Systems versus Activity-Based Costing System

2.2.1   How does Activity Based Costing differ from Traditional Costing Systems?

2.3   A brief history of Activity Based Costing (ABC)

2.4   Benefit of ABC

2.5   Practical application of ABC

2.5.1   Across industries

2.5.2   Across countries

Chapter 3   Activity Based Costing (Abc) Model In Higher Education Institutions:

The Conceptual Framework

3.1   The limitations with Traditional Costing System

3.1.1   General limitations

3.1.2   Limitations with regard to the HEI

3.2   Critical Evaluation of ABC Model in Higher Education Institutions

3.2.1   Resources Module

3.2.2   Activity Module

3.2.3   Cost Object Module

3.2.4   Cost drivers module

3.3   Summary

Chapter 4   Abc Model For Bachelor Of Accountancy (Bacc) University Of Abc

4.1   Introduction

4.2   Overview of Accounting System in UoABC

4.2.1   Overview of Academic Administration

4.2.2   Finance Administration

4.2.3   The ABC Model for

University of ABC (UoABC).

4.2.4   General Overview of ABC Model for UoABC

4.2.5   Resources Module

4.2.6   Activity Module

4.2.7   Cost Object Module

4.2.8   Cost Drivers

4.3   Cost Calculation of Bacc Programme using ABM- SAS’s software

4.4   Summary

Chapter 5   Discussion And Conclusion

5.1   Introduction

5.2   Different perspective of cost calculation

5.2.1   Modules

5.2.2   Cost comparisons between two systems

5.3   Under costing versus over costing

5.4   The research agenda

5.4.1   Methodological issues

5.4.2   Technical issues

5.4.3   Technical issues

5.5   Conclusion

Reference

PREFACE AND ACKNOWLEDGEMENT

This book is basically the result of five years of researching the material to costing, management accounting and higher education institutions. It is also one chapter of my PhD report on the ABC model development in one of the biggest university in this country, Malaysia.

Higher Education Institutions (HEIs) are faced with immense challenges, at least for two reasons: the rising operating costs (Alejandro, 2000; Boehner and McKeon, 2003; Evans, 2004; Fong, 2005; Milano, 2000; Tatikonda and Tatikonda, 2001) and the great demand for accountability (Coy and Pratt, 1998; Davies and Thomas, 2002; Jarrat, 1985; Kidwell et al., 2002; McChlery and Rolfe, 2000; Mir and Rahaman, 2007; Newman, 2003). Furthermore, the rise in operating cost is evidenced by the increasing cost per student all over the world mainly in the developed countries like the United States of America (USA), the United Kingdom (UK) and Australia. In the USA, for example, the National Association of College and University Business Officers (NACUBO) reported that the instructional cost per student in public colleges and universities in the USA had increased on an average of 57 per cent between 1987 and 1996. This phenomenon also concerns universities in Great Britain and Australia (Kober et al., 1996; Mitchell, 1996; Newman, 2003).

In my beloved country Malaysia, the Ministry of Higher Education (MOHE) reported that on average, the country spent 4.4 % of total public expenditure on education, including higher education (Ministry of Higher Education Malaysia, 2006). MOHE added that this rate accounted for among the largest amount spent on education as compared to Sweden (3.6%), Australia (3.4%), India (2.6%), Germany (2.4%) and the UK (2.0%).

Furthermore, Malaysian’s budget allocated for public universities has increased by 11.2% within 10 years (RMK7¹: RM 2.3 billion to RMK8: RM 2.6 billion). During 2006 to 2010 alone, the Malaysian government had allocated a sum of RM 16,069,000 for 29 public universities and colleges in the country. The MOHE reported that on average, Malaysia spent 4.4% of total public expenditure on education, including higher education (Ministry of Higher Education Malaysia, 2006). They added that this rate is among the highest expenditure on education compared to Sweden (3.6%), Australia (3.4%), India (2.6%), Germany (2.4%) and the UK (2.0%). This increased trend continued to increase steadily increased since 2015 to 2018 by RM14.09bil, RM14.84bil, RM15.70bil and RM16.62bil respectively, noted that a growth of value of roughly 7.7% annually. The Education Ministry as the biggest recipient in the 2019 Budget being allocated RM60.2bil, (19.1%) of total government spending.

This substantial allocation, supported by the Malaysian government’s aim of turning Malaysia into a regional and international hub and centre of excellence in education by the year 2010 (Ministry of Higher Education Malaysia, 2006), has led to a strong need for restructuring of higher education systems (Lee and Healy, 2006). Hence several reforms and initiatives have already taken effect in gearing the country towards the new direction of higher education in Malaysia. Among other initiatives that were executed within a ten year period are: (1) the diversification of higher education, (2) changes in university governance and management, and (3) restructuring of faculties and academic programmes (Morshidi Sirat, 2006).

Given the scarce resources and budgetary constraints, HEI in Malaysia (and perhaps elsewhere) are in critical needs for more comprehensive and accurate cost information. The existing management structures at HEI are facing serious problems because of the absence of information systems, both general and accounting related information. With regard to the accounting related information, the proposed ABC model will enable the management to not only establish the degree of utilization the resources and potential savings, but also to determine cost, to make the cost comparison of each student attending various courses in all levels of the institution. Thus, significant efforts need to be taken to introduce and implement sophisticated and comprehensive costing systems to cater the increasing amount of universities and various types of universities.

Even though the use of ABC model is rapidly gaining favour in service organisations (Alejandro, 2000; Cohen and Hansen, 1999; Krishnan, 2006; Newman, 2003), there is very limited research initiated on the usefulness of contemporary management accounting techniques such as ABC in a non-profit service setting such as the public education sector. Most of the past studies focused on a specific area in the university’s administration as a whole; for example, the university library (Newman, 2003), and university programmes (Alejandro, 2000); or focused on only a single group of respondents i.e. users (Duron, 2001; Evans, 2004; Granof et al., 2000) of cost accounting information.

As a more sophisticated costing system, ABC serves to focus management’s attention on the cost of the key activities, leading them to a better understanding of what causes such costs, and what changes are necessary to reduce the costs, thus identifying opportunities for cost reduction. Accordingly, ABC also provides managers with information that enables them to make decisions concerning optimal allocation of resources. Several other benefits of ABC in higher education institutions were provided by Tatikonda and Tatikonda (2001), among others are: (i) better cost information; (ii) better distribution of scarce resources; (iii) better course and programme mix; (iv) better cost control; and (v) better public relations tool.

This book intends to provide a basic guideline on the process of developing an ABC model in institution of higher learning. Even though the ABC models were developed in many universities abroad (e.g., Baylor University Hankamer by Alejandro, 1990: Washington State University by Cook, 2003; California University College by Kinsella, 2003) but no empirical model written as a book, especially for the higher educational institutions.

Particular gratitude is due to the people who have made this book possible. My thanks also to the editorial staff of Partridge Publication for their patience with me. I kept them waiting much longer than I care to mention, partially because of some the part of university life we all wish we could find a way to do away with and partially because I am always very unrealistic about the magnitude of the tasks to which I commit myself. I also owe a special note of thanks to so many colleagues who, for various reasons, were (and may still be) sceptical of the approach. Without that scepticism and close scrutiny, there would be far more weaknesses and errors in this and related works. Those who know me know that I love a good argument, often to the point of becoming very excited. I hope that trait is never construed as a lack of appreciation for opposition to one of my pet ideas. For that reason, this acknowledgement to those who were willing to try to get me to see… is especially heart felt. We are a very special community in that without the dialectic; we would be so much less that we are. I hope we never lose