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abstract: the development of equivalence methods can be divided into three phases of development. this paper concerns the last phase, which corresponds to the emergence of autonomous methods. we propose to examine the history of these methods, from their emergence in france in the 1950’s, up to the present day. the advent of autonomous methods,

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Critiques, Analyses et Avis (29)
sarahauger
taught regularly, and is now considered as a classical method. kaplan, who was at the origin of the method, now qualifies it as the “traditional abc” method (kaplan & anderson, 2004, 2007). aware of the operational limits of the abc method, he recently proposed a simplified version, time-driven activity-based costing (tdabc). what does this evolution from abc to tdabc mean? could this way of simplifying the calculations not be likened to the equivalence methods sometimes encountered in the literature? in their training manuals, raulet (1982, p.45) and lauzel (1971, p.131) 2 both present methods based on constant ratios or equivalence coefficients, the principle of which is very like that of the tdabc method. the conseil national du patronat français (cnpf, 1957) 3 used to advocate methods “based on statistical calculations... to reduce the figures down to the case of a firm producing only one product..”. in parallel, in the 1960’s, the cegos 4 in a training document entitled “les méthodes indiciaires” (indexed methods) considered different methods whose “principle is to share global costs between a group of articles manufactured or cost centres without having to allot each cost to a specific item… using a common unit…covering all the articles manufactured”. still today, bouquin and gervais
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(bouquin, 2008, p.176; gervais, 2009, p.197). many methods that we may qualify as equivalence methods have in common the fact that they simplify the calculations by fictively reducing multi-product or multi-activity firms to firms that only produce one product or a very limited number of product families. they are based on the hypothesis that the firm’s production as whole can be reduced to a multiple of a reference article we can take this definition further by defining three levels of equivalence method according to the typology proposed in table 1.1.
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they seek to establish laws of variation of certain costs (raw materials, labour, maintenance, depreciation) according to the physical characteristics of the products manufactured. for each article, an equivalence is established with the reference unit (article, product, service) whose weighting will allow the global equivalence coefficient of the product concerned to be calculated. they group the costs over several cost centres by means of equivalences related to how much these cost centres were used.
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in a previous communication (levant & zimnovitch, 2009), we focused on the period of the second industrial revolution. we observed that equivalence methods appear just after an innovation criticized for its complexity and that they allowed a certain operationality to be introduced after theoretical developments deemed too complex to implement. could these remarks also be applicable to recent history? this is what we set out to explore in the following pages.
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we have divided the years from 1950 into two thirty-year periods. in the course of the first period (part 1), from 1950 to 1960, we witnessed the emergence of autonomous equivalence methods (complex methods that were entirely based on the principle of equivalences with regard to the various production processes and which were self-sufficient in that they were not complementary to other methods), which provided a response to the criticism levelled at the sections homogènes method and the standard costs methods that were dominant in cost accounting at that time, but which gradually became overshadowed by direct costing which was all the rage in the sixties and seventies. like the phoenix, reborn from the ashes, autonomous equivalence methods were to have a new lease of life as of the 1990’s, in the form of the uva method in france and more recently the tdabc method in the usa. this will be dealt with in part 2. we will begin this part 2 in the 1980’s, with the criticism of costing methods on the other side of the atlantic which led to the abc method. we will see how this method can be likened to the sections homogènes method, especially in terms of complexity. the same causes generate the same effects, which helps us to understand the reasons for the comeback of autonomous equivalence methods. as regards the “externalist” approach to the contemporary evolution of equivalence-based costing methods, while not neglecting the individual strategies of the originators of these changes, we have placed our emphasis on macro-economic factors. we are aware of the fecundity of pluralist approaches to accounting history, and especially critical analyses (fleischman et al, 2003). to consider in greater depth those factors that influenced the devices for controlling indirect charges adopted at the time of the “transformations of capitalist firms between the 20th and the 21st centuries” (weinstein, 2010), it would probably be useful to refer to foucauldian or marxist concepts. as we wish to focus more particularly on the “internalist” aspects of the evolution of management accounting in this article, we have not considered such interpretations. as regards our methodology, we have triangulated various sources. our observations concerned “immediate history” (soulet, 2009), a period occurring less than one generation ago. while a study of the recent past is subject to the same objectives and the same approach as for the more distant past, there are a number of factors that give the history of the present time a specificity that tends to direct us towards certain archives rather than others which, whether public or private, can not be consulted for reasons of confidentiality, whereas oral archives tend to be more accessible. in reality, we have followed the rules used by historians to ensure that:
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(bloch, 1993, p. 104). in order to observe the methods used by french firms since 1950, we therefore used all sorts of "first hand accounts": company or consultant archives 9 and concrete surveys, such as the surveys on the use of costing methods in firms. we also based our research on reports by professional associations, academic work 10 , training manuals, case studies and fascicules from professional training bodies 11 . we also used oral documents and interviews. most of our sources reflect what people said about costing methods. we may question whether this actually reflected costing practices. we may at least consider them as marking the adoption of managerial innovations with regard to costing as part of a diffusion process (alcouffe, berland & levant, 2008). the works of fleischman (1996) and boyns, edwards & nikitin (1997a,b) shed some light on the debate about the ratio of the volume of published works to actual practices. the local or business practices observed or first hand accounts from authors or users, would indicate that these techniques were effectively disseminated. on the other hand, if we had exclusively based our research on
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atlantic, the standard costs method was diffused in france during the 1950’s alongside the sections homogènes method. it is these two methods that will be at the forefront of costing techniques during the period examined by us. it was however as a result of the criticism received by these two techniques that autonomous equivalence methods came into being and achieved a certain amount of recognition between 1950 and 1960, even if they only played a secondary role (1.1). direct costing, on the other hand, was to enjoy such interest in the years following this decade that it became elevated to the same rank as the sections homogènes and standard costs methods. inversely, equivalence methods virtually disappeared from the scene (1.2).
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1.1. a secondary role: 1950-1960 the dominating trend in the costing methods proposed in france in the years following world war ii was their continuity with the sections homogènes method, and the “removal from quarantine of standard costs” (zimnovitch, 1997). against a background of criticism regarding these methods, we will see autonomous equivalence methods emerge in a secondary role. 1.1.1. domination of the sections homogènes and standard costs methods as a reaction to the complexity of the cost-centres method, at the dawn of the 20th century, taylorian engineers developed more suitable methods. in order to reduce the number of centres necessary to break production down to machine or even workbench level, equivalence mechanisms were sometimes proposed in keeping with the logic of cost numbers (levant & zimnovitch, 2009). the french sections homogènes method was one of these attempts. the sections homogènes method a costing method inspired by the work rimailho 14, did for cegos in 1927-1928 was a reference model for french cost accounting, integrated in the plans comptables until the nineties even though its institutionalization was accompanied by its technical impoverishment, particularly through neglect of the concept of homogeneity. the originality of this method however actually lay in its logic of homogeneity within sections grouping together indirect charges, which were differentiated from a simple grouping together of machines manned by personnel performing identical tasks. these are not taylorian workshops, but “the joining of interrelated resources, not because they are identical, but because they are interrelated” (bouquin, 1997a, p.71). this homogeneity thus allows the number of cost centres to be reduced and avoids the criticism lodged against machine hour rate methods, such as that of church, which was that they were too difficult to implement owing to the large number of cost centres required 15 . the principle of homogeneity is in fact based on equivalences. this idea was however to gradually disappear from the method. from 1938, cegos made some modifications which contributed to its disappearance. among others, it defined the “section homogène” as: “a group of production means such that operations performed have a common unit to which its costs can be related” (cegos, 1937, p.78). rimailho criticized this development as being contrary to the initial concept 16 , but to no avail. the 1947 and 1957 plans comptables considered that the sections homogènes should correspond to actual divisions of a firm, while admitting that there is not always a clear-cut correspondence. in this case, it was necessary to use "sections fictives" (pcg 1947) or "sections de calcul" (pcg 1957). finally, the 1982 plan comptable, which was the last to incorporate cost accounting,
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broke the firm down into “centres d’analyse” 17 corresponding to functional entities. all these changes distanced the method from the concept of homogeneity. paradoxically, at the same time, some were saying that the sections homogènes method was difficult to implement. it was therefore proposed to combine it with equivalence methods in order to reduce the number of sections. echos of this can be seen in the “complex unit of measurement” (parenteau, 1945; parenteau & charmont, 1952). at the same time thorens (1954) and bourquin (1954) proposed calculating the probable cost ratios between products and therefore equivalence coefficients. bloch (1962), designated the unit as the time required for the operations on a typical article with, for the other articles, a scale giving the equivalences in type-units that were multiplied by the month’s production. audoye (1955) proposed the method of “nombres caractéristiques” which referred to an equivalent unit of measurement that was valid for all the activities of a firm. these types of method were thus proposed by the professional associations up to the 1970’s: the national confectioner’s union (1960), the international association of textile dyers (1967) and the national syndicate of rubber and plastics and associated industries (1972). parallel to this, during this entire period, we still find some references to level 1 equivalence methods in literature intended for teaching purposes (see for example: martin, 1948). as for the method of standard costs, this was developed in the usa by taylorian engineers around 1910, at the same time as the fordist production model was invented. although it was known in france at this time, it only became widely diffused in the 1950’s. one of the reasons for this can be found in the opposition to these methods among accountants. they considered them to be an extra-accounting intrusion from outside the industrial accounting system that they were striving to implement in firms in order to calculate “real costs”. at a time (early 20th century) when accountants were struggling to achieve professional legitimacy, this method was received with even greater apprehension in that it required the support of the engineers that they were themselves trying to upstage. forty years later, this obstacle was lifted. the quarantine into which accountants had place standard costs was lifted once the ordre des experts comptables (the french equivalent of the institute of chartered accountants), was officially recognized in 1945. soon after, in 1947, we saw that the plan comptable relaxed the hold that double-entry accounting had over costing methods. the perpetual inventory of accounts, contrary to the concept of standards, which introduced an extra-accounting factor, was no longer compulsory. from the time of the pcg of 1947, the distinction was made between financial accounting and cost accounting, which put an end to the monist accounting model (richard, 1980). it was therefore no longer necessary to refer to 7
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we can note that this distancing from narrow accounting techniques could only be of good to equivalence methods, and that the use and control of standards which was starting to arise in workshops could but facilitate the determination of equivalence ratios (chatzis, 1999). 1.1.2. the appearance of autonomous equivalence methods even if simplistic equivalence methods continued to circulate, as shown by a document published by the cnpf in 1957, the 1950’s were to see the emergence of autonomous equivalence methods. two of these methods have survived: the first, the points method, has no recognized originator, the other, the gp method, is named after its inventor, georges perrin. apart from the role played by individuals in this innovation in equivalence methods, the reasons are to be linked with the economic situation of france at that time which was marked by high industrial growth, the need for organization and rational management (this was one of the aims of the pcg) and the wish to bring france into the management era. all these factors were favourable to innovation in costing techniques (boulat, 2008). furthermore, the sections homogènes and standard costs methods were subject to much criticism: the first for being expensive and complex to use, the second for its unsuitability at a time of soaring inflation (after the korean war, the price of imported raw materials multiplied by 2.5 in 1951 and that of industrial goods increased by over 70 per cent!). the points method was presented during a series of conferences given as part of a training program, in 1951 and then in 1952, at the paris cnam 18 by thibert and martin (thibert, 1951-1952) 19 . we also find a presentation of the method in a publication by laugier dated 1957 20 . this method is based on constant ratios and uses an analysis of the workstations. the work division used is therefore finer than the manufacturing section:
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has no impact on costing. it could represent a particular machine or given part which will be designated the “base article”. to each work operation is allocated a time constant in “gp”s. the number of “gp”s necessary to produce each item can be calculated if the work time for each operation is known. the necessary time is not the time actually spent but the time allocated to the task. this time allows for production problems which are put into the category of overheads. it is no longer possible for an unlucky item to bear the costs of a production incident which could have easily occurred in the production of another item, the logic being that production incidents are inevitable, they are part of the firm’s overheads and all the production processes must bear their share of them. the number of “gp”s allocated to each item is designated the “equivalent” of this item. the entire production of a factory may be evaluated in terms of “gp”s over a given period. the “gp” cost price can then be calculated over a period equal to the ratio of the firm’s costs and overheads 22 , excluding raw materials and commercial costs, via the number of “gp”s produced in the same period. the cost of an item is equal to the number of “gp”s that were needed to produce it, multiplied by the cost of the “gp”. commercial costs used to be shared among the products either by means of cost-sharing formulae or otherwise considered as direct costs. the gp method is indeed strongly geared towards production 23 , owing to the professional background of its inventor and the relatively low commercial costs at the time the method was devised. the method was diffused by the consulting firm set up by perrin in 1945. numerous articles about the method were published in specialist magazines first of all by the author until his death in 1958, then by his wife suzanne who, with the publisher dunod, took care of putting out a posthumous work by georges perrin in 1962 entitled “prix de revient et contrôle de gestion par la méthode gp” 24 (perrin, 1962). we can find two cases studies by the cpa 25 , one in 1958, the other in 1960, which mention the gp method as a means of: “evaluating all production operations in terms of units over which costs are shared in as rational a manner as possible and to each of which a single value is allotted' and of 'replacing the franc as a unit of measurement, which thus neutralizes the effects of inflation”. the gp method enjoyed only limited success however.
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1.2. the decline in the interest of managers for indirect costs: 1960-1980 it is after the wage increases in 1936 in the context of an economic recession that the interest for allocating “overheads” in particular drew company managers to the sections homogènes method. it would appear however that during the period of rapid growth that france enjoyed during the 1960’s, the control of indirect costs was no longer a priority, managers being more preoccupied by lowering cost prices through increased volume and increasing their profit margins 26 .
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from that angle, direct costing gave them complete satisfaction. as this also had the advantage of being extremely simple, equivalence methods found themselves being overtaken by a method that was motivated by the same arguments that had previously put them in the limelight. 1.2.1. the success of direct costing: 1960-1980 the reasoning behind the separation of fixed and variable costs according to the volume of business was set down in the first french works on industrial accounting in the 19th century; the distinction between direct costs and variable costs and between overheads and fixed costs was not however clearly established. why then was the term direct costing used from that time? it appeared for the first time in 1951 in an article written by an american controller, waldo neikirk, and published by the national association of cost accountants (naca). it is true that, like in france, the separation between fixed costs and variable costs had been known and applied for many years in the united states using the break even chart. a number of engineers (hess, knoeppel and rautenstrauch), in the 1920’s could claim to be at the origin of the method. furthermore, the history of direct costing takes us back to an article dated 1936 which presents its principle in full (weber, 1966). it is certain that during the fifteen years that separate this article from that of neikirk (1951), the tendency to ignore overheads was not yet in vogue. first of all, the policy set down by roosevelt as part of the new deal aimed to promote full costing methods, via professional associations, in order to combat deflation. then with the entry of the usa in world war ii in 1941, many prices were fixed by the administration according to the cost plus method which includes all costs. in the 1950’s however, direct costing was all the rage in the usa. we may recall that it was during this time that “productivity missions” were conducted to enable the french to study american management methods, hence their enthusiasm for standard costs. unlike the standard costs method, direct costing did not take forty years to become known but was diffused in just a few years. admittedly, in 1952, parenteau, director of cegos, makes a pejorative reference to it 27 , qualifying it as a “sales method known as dumping” (parenteau & charmont, 1952, p.30). but when in 1954, lauzel was the first to use the american 11
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expression before the fédération des compagnies de chefs de comptabilité 28 , the terms used were less harsh and the method was quickly diffused, according to the following timeline: 1955 : first article published in a professional journal. 1956: background study launched under the auspices of the conseil supérieur de la comptabilité 1958: publication of a work aimed specifically at presenting the technique; 1959: the centre de perfectionnement aux affaires (cpa) presents a case study (drawn from saint-gobain and renault) approaching the subject of direct costing; 1961: the method was an exam subject for the professional accounting diploma. our purpose is not to present here the various pros and cons of this method in comparison to other methods. what can be said to back this up is the coincidence between the high economic growth of the period and use of this method which offers an easy way of linking costs, business volumes and profits, whilst in situations of economic tension, it is rather the full costing methods that are used to detect unprofitable business or adjust prices without any adverse effects on the market. two other obvious advantages of direct costing are its simplicity of use and its simplified presentation: there are no longer any fixed costs, and one avoids the complications involved when using the rational allocation of costs. at the beginning of the 1950’s, we saw that equivalence methods had benefited from the complexity of the sections homogènes method, and from the inflationist climate during the korean war which made the introduction of standards more difficult. ten years later, the simplification offered by equivalents had little effect in comparison to what direct costing could offer. it is true that equivalents in theory, only eliminate fixed costs, but not the indirect costs that were targeted by the autonomous equivalence methods; but in practice, the two types of costs broadly overlapped each other, especially half a century ago. wallowing in an atmosphere of glorious expansion, managers had little care for controlling indirect costs 29 . as of the
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1960’s, management control was the latest discovery, and direct costing happened to offer a representation of costs that was acceptable to controllers in the form of variable costs, their effect on fixed costs being deemed to be minor. direct costing joined the sections homogènes and standards costs method as the predominant cost accounting methods and tended to eclipse the gp method (levant & de la villarmois, 2007). 1.2.2. survival of the gp method in the 1970’s suzanne perrin had attempted to continue the work of her late husband by publishing his works between 1959 and 1977 under her own name (perrin s, 1959, 1976a, 1976b, 1977) and several articles in the magazine l’usine nouvelle between 1961 and 1967 or under the pseudonym xavier serrières (serrières, 1969). owing to the problems encountered by her 12
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priority and the costing methods used by american managers were starting to come under criticism. it was postulated that the crisis in american industry was due the fact that managers neglected to monitor indirect costs which, if badly managed, would put a strain on costs in the face of japanese competition; if well managed, however, they would be a key factor in the success of a modern business (miller & vollmann, 1985). a study of accounting history revealed that the costing methods used in the usa had been developed in the early 20th century, in a taylorian environment which was seeking to reduce the direct labour costs that were predominant in the cost structure. indirect costs were distributed arbitrarily with the sole aim of arriving at the same global amounts as the financial accounting results (johnson & kaplan, 1987). to restore their pertinence to costs, a new approach, activity-based costing (abc), was proposed by kaplan, johnson and cooper working with a group of professionals and industrialists: computer aided manufacturinginternational (cam-i). the principle of this method is familiar; it involves logically considering the resources consumption process, eliminating those which do not contribute to activities that create value and highlighting the cost of those that generate value. for this, it is necessary to adopt a more transversal perspective of the firm, rather than a functional vision. the abc method was soon introduced to france during the nineties, under the impetus of professors mévellec, evraert, lebas, and lorino, working with research groups such as ecosip and the cerede that the ordre des experts comptables had set up to improve the control systems in businesses (alcouffe, 2004). 2.2. abc, an equivalence method? after presenting what the abc and sections homogènes methods have in common, we will establish how it can also be considered as a method based on equivalences. 2.2.1. abc: any relation to the sections homogènes method? according to the designers of the abc method, in a conventional costing system indirect costs are allocated to cost centres then shared among the products by means of arbitrary coefficients. contrary to this, the abc methods follows a logic whereby activities consume resources at process level and products consume activities according to how much the cost drivers are used. according to the supporters of the abc method, an activity must be distinguished from a “classical” cost centre which is often associated with a function or department of a firm… and one must not confuse a cost driver 31 with a simple allocation of indirect costs (cooper, 1987, p.49). if a
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the cost, otherwise it would fail in its explicative mission (bouquin, 1997b, p.144; gervais, 1997, p.177); furthermore, the principle of homogeneity must be respected with regard to the activity: but rather than trace overhead costs to cost centers, as it is done in the typical cost system described in chapter 8, this procedure decomposes overhead costs into homogeneous cost pools, homogeneous in that cost variations in any given pool can be explained by a single cost driver. (johnson and kaplan, 1987, p.238).
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the abc method may be considered as an american “reinvention” of the sections homogènes method, in that its technical qualities are no better. certain supporters of the abc method have even admitted that, when used “properly” the abc method and the sections homogènes method give the same results in terms of costing, even if, according to lebas (1994), the abc method can not be reduced simply to a costing method. alcouffe and malleret (2004) show that there are divergences in the “conceptual foundations” of the abc method and its operationalization in a french context. mévellec (2005, p.192) also observes highly heterogeneous models based on activities. the main differences concern the composition and aggregation of the activities. 2.2.2. abc - an equivalence-based method? the conceptual similarity between the abc method as a costing method and the sections homogènes method and “level 2 equivalence methods” is patently obvious. activities are resource grouping centres which must be homogeneous and the cost drivers act as the equivalence unit in the same way as the units of measurement (cf above). the abc system was designed not only to reduce the specification errors often observed when constructing full costing models (these errors appear when volume-based cost indicators 15
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anderson (2003, 2004) observed that, in parallel to the increased need for information stemming from the need for greater precision or from the extension of the model to the entire firm, there is an exponential escalation of computing needs, for storing and exploiting the data. these problems, combined with the high setup and maintenance costs, caused great difficulties in the implementation of the abc method, often highlighted (anderson, 1995; kaplan & anderson, 2007; malmi, 1997; gosselin, 1997). this led to the method either being abandoned or used incorrectly. to overcome these problems, it was proposed from the start to group the centres by grouping together activities having the same cost drivers (mévellec, 1995), which is perfectly conceivable so long as their homogeneity remains (bouquin, 2008; gervais, 2009), but this point was often neglected for economic reasons:
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activity-based costing systems achieve their improved accuracy over traditional volume-based cost systems by using multiple cost drivers (instead of one or two) to trace the cost of production activities in a process to the products that consume the resources used in those activities. unfortunately, the number of activities performed in a typical facility is so great that it is not economically feasible to use a different cost driver for each activity. instead, many activities have to be aggregated and a single driver used to trace the costs of the activities to the products. (cooper, 1989, p.34)
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here we have a confusion between the effect and the cause which endangers homogeneity. we can recall the misgivings of rimailho when he denounced the hasty simplifications recommended by cegos (cf above). like for the sections homogènes method, it was proposed to operationalize the abc method by using simple equivalence methods alongside it. innes and mitchell (1995, p.121) for example proposed to group activities by using equivalences of the drivers: for example, if purchasing were an activity pool and purchase orders were made both domestically and overseas, the overseas orders might involve considerably more administrative work. rather than split the purchasing pool into two parts (home and overseas purchasing) and have separate cost drivers for each (home purchase orders and overseas orders), it may be more convenient to simply weight the overseas orders vis-à-vis the home orders. thus, from an assessment of the work undertaken to make the respective orders, it may be decided that each overseas order be weighted by 1.5 before determining the total weighted volume of cost driver to be used in calculating the appropriate rate.
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in parallel, thomas and gervais (2008) use principal component analyses to define groups with acceptable homogeneity. owing to the various drawbacks already mentioned, the abc method was not so widespread in france. a survey by alcouffe (2002) gives a rate of diffusion in large companies of just less than 20%. bescos, cauvin and gosselin (2002) found that it had been adopted by 27% of the same type of companies. other firms that use a management accounting system generally continue to use a derivative of the sections homogènes method. parallel to this, there was revived interest in the gp method and the tdabc method appeared.
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2.3. evolution of equivalence methods with the abc method so what is new about the abc method? this question was posed right from the time it first appeared. its similarities with the sections homogènes method have been established. we can even say that the abc method is simply a “rejuvenated” sections homogènes method. we will see that the uva and tdabc methods are also simply a rehash of equivalence methods. the uva method can be considered as competing with the abc method as a substitute for the sections homogènes method. as for the tdabc method, it is also presented by kaplan who initiated the abc method, as a substitute for this method in order to reduce its complexity. 17
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determine a sales whale curve per product, per customer and per order. to do this, it recuperates all the data connected with the invoices, customers, products and deliveries that already exist in the firm’s information system, and then adds the results of the operating route descriptions obtained through the uva analysis. this tool is complementary to the existing information system (such as erp) but does not replace it. in order to diffuse this new application as widely as possible, five partnerships were signed with consulting firms (clermont-ferrand, paris region, champagne-ardennes, tours and nantes). an association was set up on 28 march 1998 to improve and promote the uva method, creating the qualifications, theoretical training, practical and expert application. the method was presented in some french management schools (escp-eap; lille business school, etc.) and in universities such as paris-dauphine or rennes i. agreements have also been signed with consultants operating in portugal and poland. to date, around a dozen gp applications, 27 up applications and 25 uva applications have officially been put in place in france by lia or other partner consulting firms (cf. above). this may not seem many, but it is necessary to point out here that other applications were no doubt put in place by other firms 33 . parallel to this, other
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2.3.2 a new method based on equivalences: the tdabc method kaplan himself rebaptized and developed the method in response to the criticism received by the abc method and its relative lack of success. from 1998, kaplan and cooper (1998, pp.292-296) presented an “improved” way of implementing the abc method. just like 40 years earlier with the equivalence method proposed by bloch (1962) for sections homogènes method, the authors decided to reduce the number of activities by means of an equivalence method. this idea was then developed by kaplan and anderson in a research paper presented at the first summit on time-driven abc in brussels in 2003 and in an article published in the harvard business review in 2004. from a simple grouping together of activities, they graduated to the presentation of a complete method. from november 2004, this method was officially named by kaplan and anderson as time driven activity-based costing (tdabc) 35 . from then on, previous versions of the abc model were designated as “rate-based abc” 36 (2003), “traditional abc” or “conventional abc” (2007). in their work published in 2007, tdabc is presented as a new method. the authors deny any relation with the reuse of existing practices of the abc method. a paragraph entitled “time-driven abc: old wine (duration drivers) in new bottles?” (kaplan & anderson, 2007, pp.17-18) is even devoted to the refusal of any relation with the 19
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abc method in the use of time-drivers 37 . the title of the french translation is nevertheless “tdabc: la méthode abc pilotée par le temps” (tdabc: time-driven activity-based costing method). what is different about tdabc, is the use of standard times and the way in which these times are evaluated. a single driver is used: this is the time needed to perform the operations 38 . a new concept has been introduced: the “resource group” 39 . this is an aggregation of the activities that consume the same resources. it is at this level that the homogeneity of the method is found 40 . kaplan and anderson assimilate the “resource group” with an organizational unit or service (2007, pp.76-81). to avoid any deviations, they however take care to point out that: calculating costs at department level is, in our experience, the simplest and fastest way to build a tdabc model. but a departmental cost is valid only if the mix of resources supplied is about the same for each activity and transaction performed within the department. this assumption is violated if the activities and transactions done within the department use different resources. (kaplan & anderson, 2007, p.49).
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sarahauger
the advantage of this method is that it becomes superfluous to determine the various activities, as the “resource groups” are normally well defined and there are less of them than activities. the complexity of operations is taken into account using time equations to determine how much resources each activity consumes. using these equations, it is easy to update the model: an extra activity can be added (if performed by the “resource group”), as can variables explaining the time spent, productivity changes can be taken into account, etc… this simplification would allow the multiplication of activities to be dealt with without presenting difficulties to distribute the resources among them. in fact, what we have here is clearly an “autonomous level 3 equivalence method” which uses working time as a unit of equivalence. in the arguments developed to promote their method, the authors underline the fact that it is easy to set up and maintain. nowadays, the tdabc method is mainly implemented by a consulting firm, acorn, set up and managed by steve anderson, with robert kaplan as a board director. it is reputed to have been put in place in over 200 companies (kaplan & anderson, 2007, p.3). conclusion the role of equivalence methods sheds light on contemporary (or even immediate) costing history of the last 60 years. we can see the difference between evolutions in natural science, which progress from the simple to the complex, and developments in management accounting tools which oscillate from one to the other. this is no doubt because the former gives priority to the quest for truth, irrespective of the models used to attain this goal, while management 20
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sarahauger
accounting is a technical product that seeks pertinence for its users who have limited rationality. we have indeed seen that after the sections homogènes method which sought to allocate indirect costs more precisely through homogeneity in the sections, this being a form of equivalence, there appeared autonomous equivalence methods in the course of the 1950’s offering a solution to those who criticized the complexity, lack of homogeneity and large number of sections of the sections homogènes method. we may cite in particular the gp method invented by georges perrin. this was accentuated by the fact that at that same time the diffusion of the standard costs method was faced with rampant inflation. in the period of growth that followed, concern for controlling indirect costs became much less important than the need to respond to the sudden economic expansion in activities. this explains the development of direct costing in the 1960's. equivalence methods were also losing their appeal in terms of the simplification which had been their strength. the capacity of direct costing to analyse variable costs and fixed costs was much more significant. equivalence methods thus began to disappear from the scene. it was only with the decline of american industry in the face of japanese competition in the 1980's that there was renewed interest in the allocation of indirect costs and the abc method was invented. as for being an innovation, it was closely related to the sections homogènes method proposed by rimailho at the end of the 1920's. same causes, same effects? this is what we can deduce from the revival of the gp method, rebaptized the uva method in the 1990's, and the commercializing of the tdabc method in the 2000’s, presented as aiming to reduce the complexity, lack of homogeneity and high number of cost centres of the abc method. who said “history is the science of things that do not repeat themselves"? paul valéry!
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sarahauger
while it could appear that before this date, the accounting organization of some industrial firms was in two separate parts (external and internal, commercial and industrial, general and cost accounting) insofar as: • for the sake of convenience, they were not always carried out in the same place, • for reasons of the allocation of competencies, they obey the rules for the efficient division of work between accountants and engineers, • they did not fulfil the same needs for information and were not always directed to the same public. they were nevertheless totally integrated in that they were organically connected through the technique of double entry accounting in a single set of accounts (levant & nikitin, 2010). 14
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