The impact of implementing activity-based costing on knowledge structures

Date of Completion

January 2002


Business Administration, Accounting




This dissertation examines how individuals' knowledge and problem-solving processes are affected by the implementation of new cost accounting systems. Activity-based cost systems affect cognition in two ways: by restructuring cost categories and by changing how product costs are calculated. These effects are examined by using two experimental tasks. The first experimental task is a free sort of cost objects. The second experimental task examines the differences in managers' information acquisition behavior pre- and post-ABC implementation during a competitive bidding task. ^ There are four major findings. First, individuals with similar experiences develop similar cognitive cost structures. Second, over time cognitive cost categories become more similar to the categories used in the financial accounting chart of accounts. Third, ABC does not increase the number of cost categories used. The number of categories decreases by less than one category (.82). Fourth, exposure to ABC concepts causes individuals to view more production process and cost driver information during a costing problem. ^ There are three primary contributions of this dissertation. First, the results contribute to psychology literature regarding cognitive categorization. The study uses individuals that already have well-developed category structures that are expected to change due to changes in the environment (activity-based cost system implementation). Second, the results contribute to the management accounting literature by defining how individuals group costs. Finally, the dissertation indicates that pre-decision behavior changes after exposure to activity-based costing. Although, the pre-decision behavior changes, the decision outcome does not. This is consistent with results reported by Argyris and Kaplan (1994) that individuals often do not act on insights gained from activity-based cost system implementation. ^