Answered Essay: Assignment 1: Activity-Based Costing (ABC) in Service Industries Due Week 3 and worth 300 points

Assignment 1: Activity-Based Costing (ABC) in Service Industries
Due Week 3 and worth 300 points

Research a U.S. company in the service industry with e-commerce activities.

Write a five to six (5-6) page paper in which you:

1) Describe the company you researched in one to two (1-2) paragraphs.

2) Discuss how a time driven ABC cost system can be implemented in the company you researched and the benefits that the use will yield to the business performance.

3) Assess how using an ABC system can provide a competitive advantage to the company in the market space it operates and the resulting impact to the business performance.

4) Examine the potential impact of time-driven ABC costing on services provided online with those provided through traditional channels, considering how this knowledge will impact decisions made by management about these services.

5) Use at least three (3) quality academic resources in this assignment. Note: Wikipedia and other Websites do not quality as academic resources.


Expert Answer

A U.S. company in the service industry with e-commerce activities that I have researches is eBay. The company was started in the year 1995 and provided its customers the facility to list items for auction in its site. The company made money by charging a percentage of the sale made through the site.

The company, now, is a leader in the e-commerce space.

Time-driven activity based costing can help eBay improve its business performance and competitiveness. Using ABC, managers at eBay will be able to identify how various cost objects are using resources differently. This, in turn, will help them to determine the various areas for improvement.

The steps that will be followed are identifying activities, the costs of those activities, and cost drivers, in addition to labeling activities as either value-added or non–value-added. The main cost driver at eBay is time. Time is a primary cost driver as resources like plants and equipments have capacities. These capacities can be gauged and evaluated on the basis of amount of time they are able to do their work.

The managers at eBay would have to use the following parameters – (i) the unit cost of supplying resource capacity (ii) the consumption of resource capacity (unit times) by the activities the organization performs for services and customers

The benefit that will accrue to eBay is that senior managers can develop new insights about its various costs, resulting in improved budgeting and increased business performance with better service/product-mix decisions and greater cost control. And management can make more informed decisions about process improvements, pricing, and managing customer relationships.

The managers of eBay will have at their disposal data that is both meaningful and actionable. This can be used by the management to provide competitive costing for their services.


Bazdan, Z. (2011). An International Economy and E-commerce Case Study: eBay. Our Economy (Nase Gospodarstvo)57(3/4), 44-50

Ruhl, J. M. and B. P. Hartman. (1998). Activity-Based Costing in the Service Sector. Advances in Management Accounting (6), 147-161.

Kaplan, R.S. & Anderson, S.R. (2007). Time-Driven Activity Based Costing. Boston: Harvard Business School Press.

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