رویکرد هزینه یابی مبتنی بر فعالیت در اندازه گیری هزینه کیفیت در SME: مطالعه موردی Activity-based costing approach in the measurement of cost of quality in SMEs: a case study

Introduction One way of gaining a competitive advantage in today’s challenging business environment is to use quality and cost as differentiating factors. In order to increase customer satisfaction and the value of the products/services delivered to the market, organisations need to balance the quality and costs. Quality costs are considerable part of a company’s total costs (Giakatis, Enkawa, & Washitani, 2001) and they are essential for organisational performance (Simga-Mugan & Erel, 2000). Therefore, problems with quality are likely to damage both competitiveness and reputation of organisations. Kajdan (2007) indicates that organisations use different total quality management (TQM) methods, such as labour analysis, preventive quality tools and eliminating non-valueadded (NVA) activities to reduce costs without sacrificing quality. Cost of quality (CoQ) is among those fundamental techniques in TQM (Tsai, 1998) and it has become important for organisations (Letza & Gadd, 1994). CoQ is used as a progress indicator in measuring the overall performance of the organisations (Fassoula, 2005), and if CoQ is adequately measured and controlled, organisations are able to gain competitive advantage (Omurgonulsen, 2009). In general, CoQ is defined as all resources employed by organisations to assure quality standards (Bohan & Horney, 1991) and thus avoid losses resulting from failure. There are two steps in CoQ reporting: classification and measurement. The classification of CoQ depends on the models developed, and measurement is resolved by traditional cost accounting vs. activity-based costing (ABC) methods. Measuring CoQ requires precise cost information records. However, traditional cost accounting systems fail to provide accurate cost information to management (Yang, 2008; Tsai, 1998), which in turn causes a distortion in the measurement of CoQ. One of the reasons for the deficiency of traditional cost accounting systems is that the cost/expense categorisation does not fit well with CoQ classification models (Schiffauerova & Thomson, 2006; Tsai, 1998). Moreover, in traditional cost accounting, several costs are incorrectly reported (Yang, 2008) due to the allocation of the overheads using a single driver based on a predetermined estimated allocation rate. Traditional cost allocation methods may be satisfactory where overhead allocations are not material (Higgins & Young, 2001). However, considering the significance of manufacturing overheads in the cost structure of current production environments, it is important to use more sophisticated costing methods to allocate overheads over products/services. In the literature, several models have been developed to classify CoQ; the prevention– appraisal–failure (PAF) model (Feigenbaum, 1956), conformance and non-conformance model (Crosby, 1979), the opportunity cost model (Carr, 1992), the tangible–intangible model (Juran, Gryna, & Bingham, 1975) and the process cost model (Ross, 1977). CoQ classification models are mostly activity/process oriented (Schiffauerova & Thomson, 2006). However, as traditional cost accounting does not classify cost elements in accordance with activity/process orientation, it causes imprecise measurement of quality costs. ABC was developed by Cooper and Kaplan (1988) in order to accurately allocate overheads and mitigate the distortion on cost allocation and measurement, thus it is assumed to overcome the shortcomings of traditional cost accounting (Higgins & Young, 2001). Besides its application in cost accounting, ABC is also proposed as a supportive costing method in measuring CoQ in quality studies (Schiffauerova & Thomson, 2006). In the quality literature, studies have been attempted to measure CoQ both in theory (Weinstein, Vokurka, & Graman, 2009; Schiffauerova & Thomson, 2006; Freiesleben, 2004; Tsai, 1998; Feigenbaum, 1956; Juran, 1951) and in practice (Fassoula, 2005; Mukhopadhyay, 2004; Krishnan, Agus, & Husain, 2000; Simga-Mugan & Erel, 2000; Keogh, Brown, & McGoldrick, 1996; Carr, 1992; Bohan & Horney, 1991). Nevertheless, in the accounting literature, there is a very limited number of studies concerning the measurement and reporting of CoQ (Williams, van der Wiele, & Dale, 1999). Omurgonulsen (2009) argues that one possible reason for this is the belief that quality cannot be measured in terms of cost. Another important reason may be the use of traditional cost accounting system in the CoQ measurement. Therefore, in order to gather activity/ process-oriented cost information which supports CoQ measurement, the ABC approach is proposed in the literature (Tsai, 1998). Moreover, Mandal and Shah (2002) claim that quality costs can be measured through teamwork under the responsibility of both accounting and quality professionals. It is likely that the benefits of TQM and CoQ reporting are less understood by small- and medium-sized enterprises (SMEs) (Desai, 2008). Primarily, this might be due to the slow implementation of TQM in SMEs (Ghobadian & Gallear, 1996). Additionally, the overall effect of a well-established TQM on both operating and financial performance may not be apparent in the short run. Thus, especially in the case of result-oriented SMEs, the management may choose not to measure quality costs. Another potentially important factor is their lack of sophisticated accounting systems and cost management tools due to higher initial costs. This reluctance of SMEs to account for CoQ is supported by the fact that most previous research on CoQ implementation relates to large, profit-oriented organisations. SMEs are characterised as flexible, innovative, open to change, operating in highly competitive markets and they constitute large portion of total enterprises in the world economy. Therefore, the motivation of this study originates in the economic contributions of SMEs, the value of CoQ measurement in competitive business environment and the lack of the studies on the implementation of CoQ in SMEs. In light of the above arguments, the main aim of this study is to gain a comprehensive understanding of the measurement and reporting of CoQ under ABC using a case study development in a small enterprise. A brief summary of this study is as follows: the CoQ literature is reviewed, the use and support of ABC in measurement CoQ is explained and the case study is presented, respectively. Finally, the findings of the case study are summarised with the emphasis on the importance, the advantages and the role of ABC/CoQ model in all organisations, including SMEs.