THE EXTENT OF APPLYING THE ACTIVITY BASED COSTING SYSTEM (ABC) IN THE FIELD OF IRON AND STEEL INDUSTRY IN JORDAN

THE EXTENT OF APPLYING THE ACTIVITY BASED COSTING SYSTEM (ABC) IN THE FIELD OF IRON AND STEEL INDUSTRY IN JORDAN Dr. Khalil Mahmoud Al-Refa ee Associate Professor/ Department of Accounting Al-Balqaa Applied University/Jordan Abstract This research sought to identify the extent of applying the Activity Based Costing System (ABC) in the field of iron and steel industry in Jordan. The research aims also at estimating the viable accrued revenue as a result of implementing this system as well as at detecting crucial obstacles encountering the execution of the ABC system in iron and steel industry in Jordan. In order to achieve the goals of this study, a questionnaire was designed and distributed among the body social consisting of nine iron and steel industrial companies in Jordan. Descriptive Statistics was the basis of analyzing the feedback. The construed results showed that (71.4%) of the selected body social does not employ the Activity Based Costing System (ABC). The main reason for abstaining from applying the system is a firm conviction of the upper management that conventional systems are proficiently sufficient to their immediate needs and that there is no need to implement alternative new systems. However, another equally important reason lies in the lack of tentative application in the field of iron and steel industry in Jordan. The study concluded that iron and steel companies in Jordan ought to renovate and to restructure their systems in order to comply with Activity Based Costing System (ABC). This study also recommends to insistently promoting the (ABC) system within the upper management of these companies, as the system comprises strategic edge upon other available systems. Finally, the study also sponsors the idea of introducing and orienting these companies with the system and to explain the benefits of implementing it. Keywords: EXTENT ; APPLYING ; ACTIVITY BASED COSTING SYSTEM (ABC) ; FIELD OF IRON AND STEEL INDUSTRY ; JORDAN Introduction: The iron and steel sector of Jordan is considered to be one of the major foundations that form the national economy of Jordan. Due to the importance of this sector, and the increasing of the competition, pressure to reduce the costs accompanying the rapid growth of technology, the trend towards expansion which lead to the urgent need to increase the role of cost accounting systems because it provides useful information for the management in the decision-making process, and in adopting the appropriate strategies to ensure building of the organization and it s continuation. All businesses seek to increase profitability both in short or long terms. In order to achieve that it seeks to ensure the exploitation of available resources to achieve best value, benefit and the lowest possible costs. It is customary in businesses that cost administration is applied through dividing the organization into cost centers, and control costs within each center. Despite the diversity of cost systems, they are all consistent in their approach to the direct costs. The main controversy is the basis for allocating indirect industrial costs, which is what this research is about. COPY RIGHT 2012 Institute of Interdisciplinary Business Research 671

Accounting practice was applied to load product units its share of indirect costs through the rate of single load, this method was appropriate at the time and circumstance when the value of indirect industrial costs was small, in addition to the diversification of production was limited. In the last decades, with the increasing lack of traditional cost accounting systems, especially after the great technical development in various fields and global trends towards increasing the facilities in trade which lead to the increase in competition where the need to find an alternative cost system that loads each product including it s own jurisdiction of the indirect costs appeared in more depth and analysis. Based on above, the urgent need to conduct a study to demonstrate the application of ABC appeared, and to examine the risks that result from the continuation of applying the traditional cost accounting system, because the ABC system enables businesses to determine the cost of the product precisely, therefore the ability to set the optimal price for the product, which enable competition and profitability at the same time. Problem of the study: The iron and steel sector occupies great importance in Jordan, in addition to its important role in the national economy. It is also linked to the interests of a wide range of citizens. With the entry of imported goods into the local market, this leads to increasing the competition, which requires from facilities to work on improving the performance of the factors affecting the profitability. One of its basic elements is reducing and rationalizing costs for its various activities. Nevertheless, the ABC system helps reduce and rationalize costs which till now isn t that urgent, which led these companies to lose many development opportunities in addition to improving product and performance efficiency. The problems of the study are summarized as followed: it is widely believed that many of the iron and steel facilities of Jordan do not apply the activity based costs system, especially in the field of reducing costs, due to the presence of some obstacles such as lack of technology and hardware to apply the system, resulting the lack of application, which led to the loss of the opportunity to develop their activities and improve the efficiency. Objectives of the study: This study aims to achieve the following objectives: 1- Identify the extent of applying the activity based cost system in iron and steel factories in Jordan, from allocating and controlling costs, and taking benefit in reducing these costs. 2- Identify the main obstacles that prevent the application of ABC. 3- Displaying the activity based cost system (ABC) in all its aspects and to clarify the advantages of it applying it compared to traditional systems. The importance of the study: The importance of this study is to identify the most important and latest cost systems that can raise the efficiency and increase the competiveness by presenting adequate data for planning, controlling and making the wise administrative decisions when applying it in the iron and steel companies of Jordan. Also, in applying the principle of matching costs and revenues at the level of each product separately, in addition to identifying the profitability of the products. As well as the importance of using the ABC system to external users such as shareholders, investors and tax, through its impact on the profitability of the company. COPY RIGHT 2012 Institute of Interdisciplinary Business Research 672

Previous studies: There are many studies in the field of cost accounting activities, the most important can be summarized as following: 1- Abu Alhaijaa (2006) conducted a study entitled: The activity based cost system (the case of industrial companies in Jordan) the study aimed to identify the extent of the health outcomes of traditional cost systems used in industrial public shareholding companies in Jordan. Where any wrong decisions made based on these outcomes, if there is any waste of available resources in these companies as a result of seizure and control according to traditional systems cost? The study found that there is weakness in traditional cost systems used in industrial companies in Jordan, which is concluded from the approval of most of the managements of public shareholding companies, and the inaccuracy of the results of the cost of producing units calculated under these systems. The results from approval are taking the wrong management decisions based on these costs and that there is a waste of economic resources available in the company. This leads to continue to monitor and adjust according to the traditional cost systems. These systems do not take under consideration maintaining the beneficial activities of the units produced and dispose the activities that are not useful for the units produced. This study conducted that industrial public shareholding companies in Jordan apply the activity based cost system, followed by the industrial companies in general. 2- Al-Khasharmah (2007) conducted a study entitled Using the activity based cost system in the Jordanian industrial companies. The aim of this study was to measure the extent of the use of activity based cost system in the Jordanian industrial companies to identify the benefits that the companies using the ABC system can achieve. It also aims to identify difficulties and obstacles that prevent the application of the activity based cost system in the Jordanian industrial companies, the results of the study also showed that 10% of the study sample uses the activity based cost system, it also showed that the main result behind the lack of using the ABC system is that the companies are convinced with the cost system that they currently have. The study recommended the need to alert the Jordanian companies to develop their cost systems and the need to hold training companies for their employees to develop their abilities in dealing with different cost systems. The need for the various Jordanian companies to adopt the activities based cost system due to the great benefits they get as a result of these companies. 3- Mohammad (2008) conducted a study entitled The implications of the use of the ABC system to reduce the costs in the insurance institutions (a field study in one of the Jordanian insurance companies). The study aimed to identify the extent of using cost accounting systems in Jordanian insurance companies in general and the activity based cost system in particular in the allocation, control of costs and taking benefit in reducing these costs. What are the obstacles that prevent the application of ABC, and what are the means and necessary steps to implement the ABC system in insurance companies in Jordan. This study found that it is possible to use the ABC system for the COPY RIGHT 2012 Institute of Interdisciplinary Business Research 673

diagnosis and analysis of main and secondary activities, cost associated with each of them in insurance companies. The study also recommended the need to review the main and sub activities outlined by the study, which was characterized by high costs in general, or high costs compared to its benefits anticipated, working on processing them during the fiscal year through canceling, reducing, improving and measuring results for the remainder of the year. Hypotheses of the study: Based on previous studies and the theoretical framework, through practical experience in this sector, the hypotheses of the study can be formulated as following: 1- The iron and steel companies in Jordan apply the activity based cost system (ABC). 2- The application of the ABC system in the iron and steel companies in Jordan improves profitability. 3- The application of the ABC system leads to making rational management decisions (such as the decision of pricing, the decision to dispense a particular product, the decision to expand, the decision to continue or close a product line and the decision to measure productive efficiency). 4- There are obstacles that prevent the application of the ABC system in the iron and steel companies in Jordan. 5- The following obstacles prevent the application of the ABC system in the iron and steel companies in Jordan: A- Lack of field experience when applying the ABC system. B- Lack of qualified accounting and administrative systems that are eligible to apply the ABC system. C- High costs while applying the ABC system. D- Lack of appropriate technology to apply the ABC system within the facility. E- Management believes that the current system is sufficient and there is no need to apply the ABC system. F- Lack of sufficient information for applying the ABC. G- The expected benefits from the system are less than the cost of its application. Methodology of the study: The methodology of the study is to conduct a comprehensive review of the literature of the subject as well as a field survey of the body social- by distributing questionnaires- in the iron and steel companies in Jordan to identify the cost systems used, especially the foundations of distributing the indirect costs. Through this research, the extent of using the activity based cost system in the steel and iron companies in Jordan was identified by collecting and analyzing data then reaching conclusions,making appropriate suggestions and recommendations. COPY RIGHT 2012 Institute of Interdisciplinary Business Research 674

Data collection tool: Data was collected from two main resources: -Primary resources: through the developing a questionnaire to collect data, it was distributed to the body social, the questionnaire consists two parts, part one for data and personal information to the respondent, the second part consists questions to answer the hypotheses of the study. -Secondary resources: by referring to the specialized scientific journals, references, literature and previous studies related to the subject of the study. Body social and study sample: The body social consists the nine iron and steel companies operating in Jordan, since the companies consisting the body social are limited, the body social will considered to be the study sample. The body social of the study is as follows: 1. The iron and steel industry company of Jordan. 2. National company for the steel industry. 3. Jordan steel company. 4. The international company for the manufacture of iron. 5. Middle East Company for steel industries. 6. Philadelphia industrial group company. 7. The united company for the manufacture of iron and steel. 8. The Arab company for the manufacture of iron and steel. 9. Petra Company for the manufacture of iron. Analysis tool: Using descriptive statistics on the data collected from various sources, hypotheses has been tested by finding duplicates, percentages, mean and standard deviation of the data collected, using one sample T test to test the acceptance of the hypotheses of the study The theoretical framework: What are cost systems? Cost accounting appeared with the association of the appearance of industries, due to the urgent need for accurate information that financial accounting systems can not provide, because the tastes of the consumers changed to increase diversification in products, increasing the demand for quality and right price. The increase of mechanization of production in increasing the industrial indirect costs, resulting the interest in cost accounting to provide more accurate information. Cost accounting uses a set of principles and procedures that help in determining the cost of production, these principles and procedures are known as cost systems, which can be defined as a set of principles and procedures governing a certain way to do the compilation, allocation and distribution of costs to units of production. (1) Goals of cost systems: Cost systems can serve managements in the following areas: 1- Determine the cost of the product. 2- Reduce cost. 3- Provide information for management decision making. 4- Assistance in preparing planning budgets. COPY RIGHT 2012 Institute of Interdisciplinary Business Research 675

Activity based cost system: The idea of applying the ABC system was when the two researchers (Robert Kaplan and Robin Cooper) presented a new system in distributing indirect costs. It was later known as the activity based cost system. This system showed a more unique, clear and precise way to distribute the indirect costs than the traditional way. It got the attention of academics and administrators; it also became popular in Europe and America, and opened a wide scope for research and innovation, making changes in the control systems, evaluating performance, making decisions related to product prices, organizing productivity and more. Due to the recent address, and since the concepts upon which the system is still in the stage of development, many practical definitions were provided for the activity based cost systems. Regardless of all that, the entrances to the activity based cost system are all involved in the same principles. They can be summarized in the following definition: The activities based cost system for cost accounting, which is based mainly on considering that all products need a company that performs a set of activities, and these activities result in cost that should be borne by the facility, so it designs activity based cost systems based on the costs that are difficult to link to the recent products which are directly loaded to the activities that cause these products, then followed by the need to allocate the cost of those activities on the products according to the degree that they benefit from those activities. (4) The reasons for applying the activity based cost system (ABC): (5) There are some reasons and situations that become feasible when applying the ABC system: 1 - The great diversification in the products: The need for applying the ABC system shows whenever there are a large number of products involved in the indirect costs. The inability of the traditional system shows in distributing the indirect costs accurately. The reason is due to the variation in the distribution of indirect costs between the products, especially when the sizes and weights of products vary. 2- The increase of industrial indirect costs, as it became a large portion of total costs. 3- The increase of competition in the market in which the company operates, whether it was local or global. 4- The complexity of the production process that goes through many stages and production lines, as well as using support activities such as engineering designs, programming, marketing, accounting and others. 5-Some product s profitability is difficult to interpret, whether it was low or high. 6-Administrations believe that the prevailing cost systems that are based on direct labor costs distort the cost of the product when calculating the loading rates. The benefits of implementing the activity based cost system: The activity based cost system achieves many advantages when implementing it: 1- Determining the cost based on activities increases the number of cost complexes that the additional costs are added, instead of collecting the company s additional costs in one compound as a whole, or collecting them in complexes, costs are gathered on the basis of activities. As a COPY RIGHT 2012 Institute of Interdisciplinary Business Research 676

result, several compounds are created according to the number of driving costs that can be identified. (6) 2- ABC system helps reduce costs by reducing time and effort required for the activity, in addition to eliminating unnecessary (useless) activities, and choosing low-cost activities. 3- ABC provides an accounting system with data acquisition, accurate and detailed information for the purposes of identifying and quantifying the relationship between cost and its causes is affordable with low cost. 4- ABC reduces uncertainty and lack of trust; it also provides reliability in information when making important decisions in the field of pricing, production strategy, profitability of the consumer and the product, cost management, continuous improvement that achieves development. (Atkinson 2001) Determinants of the activity based cost system: There are some limitations accompanied with the application of the ABC system: 1- Expensive cost centers related to the measurement of various activities, as well as cost engines. (7) 2- The difficulty of collecting data related to activities, and drive costs due to the wide implementation of the ABC system in companies with a high degree of automation, where computers can be programmed in such companies to collect data related to the numbers of machines and inspections routinely. 3- The problem of selecting a justified cost for each activity. This problem appears when compiling a set of ancillary operations -which may not be coordinated- which calls for the need to use appropriate basis for the distribution of the costs of activities collected then loading them on the products. (Abdullah 2003) Steps to implement the activity based cost system (ABC): (8) There are several steps to be followed when applying the ABC system, where most of the analysts indicate the increase of implementing this system in the future. After winning the satisfaction of managers in the developed world, these steps are summarized as following: 1- Identifying the main activities of the productive process that the product needs in order to become ready from the beginning of manufacturing to customer service. 2- Identifying and defining the cost engines for each activity as they are considered to be variable factors that affect costs that have a clear and strong causal relationship. 3- Merging similar activities in terms of cost engines (causes of cost), this step is necessary in the process of applying the ABC system. 4- Creating or causing cost compounds by determining the indirect industrial costs pertaining to each activity. 5- Using cost engines to load products with costs according to the benefit from these activities. COPY RIGHT 2012 Institute of Interdisciplinary Business Research 677

Statistical analysis: Properties of the study sample: The study sample consists 14 respondents from the targeted body social of the iron and steel factories of Jordan, seven out of nine companies are the body social. The tables from (1) to (5) consist some basic information about the study sample. 1- Description of the research sample according to the index of gender: Table (1) Distribution of study sample by gender Gender Frequency Percentage Male 13 92.9 % Female 1 7.1% Total 14 100% Table (1) shows that 92.9% of the study sample were male, while 7.1% were females; the study sample was bias towards males due to the nature of work in steel and iron factories. 2- Description of the research sample according to age index: Table (2)Distribution of study sample by age Class Frequency Percentage Less than 25 years 0 0% 25-less than 35 years 3 20.4% 35-45 years 4 28.6% More than 45 years 7 50% Total 14 100% Table (2) shows that 50% of the study sample are more than 45 years; this will be talked about later on in the results while linking it with the appearance of the system. 3- Description of the sample according to the function: Table (3) Distribution of the study sample according to the career center Career Frequency Percentage Financial manager 7 50% Chief accountant 2 14.3% Accountant 4 28.6% Internal auditor 1 7.1% Total 14 100% COPY RIGHT 2012 Institute of Interdisciplinary Business Research 678

Table (3) shows that 50% of the respondents are financial managers, 14.3% are headmasters, 28.6% accountants, 7.1% are internal auditors. The highest proportion is managers, which gives more confidence value of the result, because they have accurate information about their company. 4- Description of the sample according to the years of experience: Table (4) Distribution of the sample according to the years of experience Years of experience Frequency Percentage Less than 5 years 1 7.1% 5-less than 10 years 2 14.3% 10-less than 15 years 6 42.9% 15-less than 20 years 2 14.3% 20-less than 25 years 2 14.3% 25-less than 30 years 1 7.1% Total 14 100% According to table (4) the years of experience for the study sample vary, the highest rate was from 15-less than 20 years, it is a sufficient period that an individual has in order to have full knowledge of the challenges and problems facing the process of work development, and the noncurrent needs with the growth of production volume. Description of the study sample according to the degree: Table (5) Distribution of the study sample according to qualification Degree Frequency Percentage Bachelor 13 92.9% Master 1 7.1% Total 14 100% Table 5 shows that most of the study sample are people who have bachelor degree (92.9%), while master degree (7.1%). These ratios have a good impression, as this table indicates that all members of the sample are educated, and are scientifically aware of the importance of the scientific systems that save effort, time and material. COPY RIGHT 2012 Institute of Interdisciplinary Business Research 679

Displaying the results of the study: Using descriptive statistics to find frequencies, percentages, mean and standard deviation for all of the questions of the questionnaire. The results are shown in the following tables, classified by the related hypothesis: First hypothesis: Iron and steel companies in Jordan apply the ABC system. The questions from (1-4) include the extent of knowing and applying the ABC system by the sample of the study, which are especially for the first hypothesis. Number (1) if the answer was No, (2) if the answer was Partly yes, (3) if the answer was Totally yes. The answers were as followed: Table (6-A): Table of frequencies and percentages of questions (1-2) Question No Partly yes Totally yes Total Frequency Percentage Frequency Percentage Frequency Percentage Frequency Percentage Do you have knowledge of the ABC system? Do you knowledge of the importance of the ABC system? 0 0% 10 71.4% 4 28.6% 14 100% 0 0% 8 57.1% 6 42.9% 14 100% Table (6-B): Table of frequencies and percentages from questions (3-4) sorted by companies Question No Partly yes Totally yes Total Frequency Percentage Frequency Percentage Frequency Percentage Frequency Percentage Does your company apply the ABC system? Does your company have the intention to apply the ABC system? 5 71.4% 1 14.3% 1 14.3% 7 100% 2 28.6% 3 42.8% 1 14.3% 6 92.9% COPY RIGHT 2012 Institute of Interdisciplinary Business Research 680

Table (7): Table of the arithmetic mean and standard deviation of the questions (1-4): Question The arithmetic mean Average measurement tool Standard deviation Do you have knowledge of the ABC system? Do you have knowledge of the importance of applying the ABC system? Does your company apply the ABC system? 2.29 2 0.47 2.43 2 0.51 1.43 2 0.79 1.71 2 0.76 Does your company have the intention to apply the ABC system? As shown in tables (6-A), (6-B), (7) the answers to the questions (1-4): The percentage of knowledge of the sample system given in question one was 100%, and varied the extent of this knowledge between partial knowledge and full knowledge, where 71.4% of the respondents have knowledge of a partial system, while 28.6% have full knowledge, and that the arithmetic mean was 2.29 which is higher than the average measurement tool (2) with a standard deviation of (0.47), that is a strong indication that all of the chosen study sample from the Jordanian iron and steel companies have knowledge of the system. The percentage of knowing the importance of the ABC system reached 100%, that is shown in the answers of the second question, this knowledge varies between partial knowledge and full knowledge, 57.1% of the study sample have partial knowledge, 42.9% have full knowledge, and that the arithmetic mean was 2.43, which is higher than the average measurement tool (2), standard deviation of 0.51, that is another indication that the sample has full aware of the importance of the system. 71.4% of the respondents said that their companies do not apply the ABC system, at the rate of five companies out of seven companies, while 28.6% apply the system, at the range of two companies; they vary in partial application and full application. The percentage that partially applies it 14.3% while 14.3% fully apply it. The third question had the mean of 1.43, which is less than the average measurement tool, with the standard deviation of 0.79. As noticed from the answers of the questions (1-2), all study sample have knowledge of the ABC system, they also have knowledge of the importance of the ABC system. If we compare it with the answers to the third question, it is clear that 71.4% of respondents companies do not apply the ABC system, which is an indication of the presence of an obstacle or problems to implement the ABC system that is what will be addressed in the fourth hypothesis. 28.6% of the member s of the participated companies do not intend to apply the ABC system at the rate of two companies out of seven. While 64.3% who have the intention to convert to COPY RIGHT 2012 Institute of Interdisciplinary Business Research 681

the application of the ABC system, between partial and full transformation at the rate of four companies. And that 7.1% of the sample (one company) has not mentioned whether there is an intention to transfer to the application of the ABC system. The arithmetic mean was 1.71% which is less than the average measurement tool, which is a negative indication. The standard deviation is 0.76. According to results of the analysis of the fourth question, it is obvious that there is an obstacle to apply the system. Whether to identify if this hypothesis is accepted or not, question 3 (Does your company apply the ABC system?) will be referred to. It is clear from table (6-A), (6-B) that 71.4% of the study sample do not apply the ABC system at the rate of 5 companies out of 7. While 28.6% of the sample use the system, at the rate of 2 companies. The application varies from partial and full application. From table 7 the mean of the third question is 1.43, standard deviation is 0.79 this shows that we reject the hypothesis. Iron and steel companies do not apply the ABC system in general. Second hypothesis: Applying the ABC system in the Jordanian steel and iron companies leads to increasing the profitability: The questions (1-4) in the second part of the questionnaire included the relationship between applying the ABC system and improving the profitability. (1): if the answer is I strongly don t agree (2): if the answer is I don t agree (3): if the answer is neutral (4): if the answer is I agree (5): if the answer is I strongly agree COPY RIGHT 2012 Institute of Interdisciplinary Business Research 682

Table (8) Frequency table and percentages for the questions (1-8) Question Strongly agree Agree Neutral Disagree Strongly disagree Frequency Percentage Frequency Percentage Frequency Percentage Frequency Percentage Frequency Percentage 1-ABC system excludes unnecessary activities 4 28.6% 9 64.3% 1 7.1% 0 0% 0 0% 2-The application of the ABC system leads to selecting low cost activities. 3-ABC system provides information that contributes in determining the best profitability products of that company 4-ABC provides accuracy in the interpretation of profitability for certain products of the company 3 21.4% 8 57.2% 2 14.3% 1 7.1% 0 0% 9 64.3% 3 21.4% 2 14.3% 0 0% 0 0% 7 50% 7 50% 0 0% 0 0% 0 0% COPY RIGHT 2012 Institute of Interdisciplinary Business Research 683

Table (9) Table of the arithmetic mean and standard deviation of the questions (1-4) As shown in table (8), (9) the answers to the question (1-4) of the study sample for the second paragraph: 1-The rate of approval to the first question (ABC system excludes unnecessary activities) reached to (92.9%) at the rate of agree and strongly agree. The proportion of 7.1% was neutral. This confirms that applying the ABC system excludes unnecessary activities, also the arithmetic mean was 4.2, which is greater than the measurement tool, this confirms what has been inferred, and that the standard deviation was (0.58). 2- That 78.6% of the study sample agreed to the second question (The application of the ABC system leads to selecting low cost activities), at the rate of agree and strongly agree. While 7.1% don t agree that the system selects low cost activities, 14.2% of the sample is neutral, the arithmetic mean 3.93, which is greater than the measurement tool, the standard deviation for this question was 0.83, and this leaves a positive impression that the ABC system selects low cost activities. 3-85.7% of the study sample agreed on the third question that ABC system provides information that contributes in determining the best profitability products of that company between agree and strongly agree. Only two companies showed disagreement, or refused the contribution of the system in determining the profitability products, which were 14.3%, their answer was neutral. The arithmetic mean for this question was 4.5, which is a high value, and higher than the measurement tool. The standard deviation was 0.76. These results show that applying the ABC system leads to providing information that determines the best profitability products in the company. 4-There is a total unanimity in the fourth question that the ABC system provides accuracy in the interpretation of profitability for certain products of the company, the positive percentage reached 100%, 50% agree and 50% strongly agree, the arithmetic mean was 4.5, which is a COPY RIGHT 2012 Institute of Interdisciplinary Business Research 684

high value and higher than the measurement tool. The standard deviation was 0.52, which confirms the contents of the question. As shown in table (8) and table (9), there is an inevitability acceptance in this hypothesis, as the averages of the questions were positive and greater than the average measurement tool. To illustrate this result, we will use the (one sample T-test). Four answers for four questions will be collected, the acceptance or rejection of the hypothesis will be tested, and the average measurement tool will be 12. The following table shows the results of the test: Table (10) Views The arithmetic mean Standard deviation 14 17.14 1.66 Calculated T Tabulated T SIG T 11.61 1.771 0.008 According to the previous results, calculated t=11.61, which is higher than the tabulated value, which is 1.771, and according to the rule we accept the hypothesis which states that applying the ABC system in the iron and steel companies in Jordan improves profitability. The level of significance of calculated T reached (0.008), which is less than 0.05; this confirms what s stated in the hypothesis that applying the ABC system improves profitability. The third hypothesis: The application of the ABC system leads to rational management decisions, (the decisions related to pricing, expansion, dispense a particular product, continuing or closing a production line, measuring product efficiency). COPY RIGHT 2012 Institute of Interdisciplinary Business Research 685

Questions (5-12) included that applying the ABC system leads to rational management decisions; tables (11), (12) show the answers: Question Strongly agree Agree Neutral Disagree Strongly disagree Frequency Percentage Frequency Percentage Frequency Percentage Frequency Percentage Frequency Percentage 5-Applying the ABC system distributes indirect costs on the products in an accurate way in determining the cost of products. 6-Applying the ABC system while determining the cost of products leads to making a more adequate pricing decision 7-Applying the ABC system helps provide more accurate information for the purposes of product pricing 9 64.2% 4 28.6% 1 7.1% 0 0% 0 0% 6 42.9% 5 35.7% 3 21.4% 0 0% 0 0% 5 35.7% 7 50% 2 14.3% 0 0% 0 0% 8-One of the advantages of applying the ABC system is making rational expanding decisions in opening more profitable product lines in the long term 2 14.3% 7 50% 4 28.6% 1 7.1% 0 0% COPY RIGHT 2012 Institute of Interdisciplinary Business Research 686

9-Applying the ABC system leads to dispensing a specific product 5 35.7% 3 21.4% 5 35.7% 1 7.1% 0 0% 10-The application of the ABC system leads to determining the cost of products with high accuracy, which helps management in making decisions about the sustainability of a particular product line or closing it. 11-Applying the ABC system helps saving time required for the productive process 8 57.1% 4 28.6% 2 14.3% 0 0% 0 0% 2 14.3% 8 57.1% 4 28.6% 0 0% 0 0% 12-Applying the ABC system helps provide more accurate information for the purposes of measuring the productive efficiency 3 21.4% 11 78.6% 0 0% 0 0% 0 0% COPY RIGHT 2012 Institute of Interdisciplinary Business Research 687

Table (12) The arithmetic mean and standard deviation of the questions (5-12) Questions Arithmetic mean Average measurement tool Standard deviation 5-Applying the ABC system distributes indirect costs on the products in an accurate way in determining the cost of products. 6-Applying the ABC system while determining the cost of products leads to making a more adequate pricing decision 7-Applying the ABC system helps provide more accurate information for the purposes of product pricing 8-One of the advantages of applying the ABC system is making rational expanding decisions in opening more profitable product lines in the long term 9-Applying the ABC system leads to dispensing a specific product 10-The application of the ABC system leads to determining the cost of products with high accuracy, which helps management in making decisions about the sustainability of a particular product line or whether it should be closed. 11-Applying the ABC system helps saving time required for the productive process 12-Applying the ABC system helps provide more accurate information for the purposes of measuring the productive efficiency 4.57 3 0.65 4.21 3 0.8 4.21 3 0.7 3.71 3 0.83 3.86 3 1.03 4.43 3 0.76 3.86 3 0.66 4.21 3 0.43 COPY RIGHT 2012 Institute of Interdisciplinary Business Research 688

It is clear in table (11), (12) for the questions (5-12): The rate of approval in the questions are (92.9%, 78.6%, 85.7%, 64.3%, 57.1%, 85.7% 71.4%, 100%) respectively. They are all higher than the accepted percentage. The arithmetic mean (4.57, 4.21, 3.71, 3.86, 4.43, 3.86. 4.21 respectively), was higher than the average measurement tool (3). This confirms what was mentioned in these questions from the contributions and advantages of the ABC system in achieving business development and providing the basic factors of time, effort, material and information. The least approval rate for the questions pertaining to this hypothesis in the ninth question, which states Applying the ABC system leads to dispensing a specific product were 57.1% neutral 35.7%, while 7.1% of the sample did not approve the question, at the mean of 3.86. We will deal with this hypothesis with the same method that was dealt with in the second hypothesis. We will use the one sample T-test. Eight answers will be collected; the test of acceptance or rejection will be tested. The average measurement tool 24, the following table shows the results: Table (13) One sample T-test results Views Arithmetic mean Standard deviation 14 33.07 3.75 Calculated T Tabulated T SIG T 9.048 1.771 0.009 According to the previous results, calculated T=9.048 is higher than its tabulated value (1.771), and according to the rule we accept the third hypothesis which states that Applying the ABC system leads to rational management decisions (decisions related to pricing, expansion, continuing or closing a specific productive line, dispensing a particular product, measuring productive efficiency). This means that the average answers to the questions (5-12) is not equal to the average measurement tool 25 (it is higher). The arithmetic mean was 33.05; the level of significance of calculated T reached 0.009 which is less than 0.05. This confirms what was stated in the hypothesis: that applying the ABC system leads to making rational management decisions. Fourth hypothesis: There are obstacles that prevent the application of the ABC system in the iron and steel companies of Jordan. As for the fourth hypothesis that is about obstacles that prevent applying the system, this following table has the sample s answers to the question: Table (14) Answer Frequency Percentage Yes 13 92.9% No 1 7.1% Total 14 100% COPY RIGHT 2012 Institute of Interdisciplinary Business Research 689

As shown in table (14), 92.9% of the study sample stated that there are obstacles that prevent the application of the ABC system in their factories; this proves the fourth hypothesis which states that there are obstacles that prevent the application of the ABC system in the iron and steel companies of Jordan. While 7.1% stated that there aren t any obstacles. Fifth hypothesis: as for the last hypothesis that states that the following obstacles prevent the application of the ABC system in the iron and steel companies of Jordan : These seven obstacles prevent the application of the system: 1. Lack of field experience in applying the ABC system (Q13) 2. Lack of qualified accounting and administrative systems that are eligible to apply the ABC system (Q14) 3. High costs of the application of the ABC system (Q15) 4. Lack of appropriate technology to apply the ABC system within the facility (Q16) 5. Management believes that the current system is sufficient and that there is no need to apply a new system (Q17) 6. Lack of sufficient information to apply the system (Q18) 7. The expected benefits of the system are less than the cost of applying it (Q19) The following tables show the sample studies answers about their degree of acceptance for the importance of these obstacles: Table (15) Frequency and percentage table for the questions (13-19) Question Strongly agree Agree Neutral Disagree Strongly disagree Frequency Percentage Frequency Percentage Frequency Percentage Frequency Percentage Frequency Percentage 13- Lack of field experience in applying the ABC system 14- Lack of qualified accounting and administrative systems that are eligible to apply the ABC system 2 % 14.3 7 % 50 2 % 14.3 2 % 14.3 0 0% 3 % 21.4 2 % 14.3 4 % 28.6 3 % 21.4 1 % 7.1 COPY RIGHT 2012 Institute of Interdisciplinary Business Research 690

15- High costs of the application of the ABC system 2 % 14.3 5 % 35.7 4 % 28.6 2 % 14.3 0 0% 16- Lack of appropriate technology to apply the ABC system within the facility 1 % 7.1 7 % 50 3 % 21.4 1 % 7.1 1 % 7.1 17- Management believes that the current system is sufficient and that there is no need to apply a new system 18- Lack of sufficient information to apply the system 6 % 42.9 4 % 28.4 1 % 1.7 1 % 1.7 1 % 1.7 1 % 7.1 4 % 28.6 5 % 35.7 1 % 7.1 2 % 14.3 19- The expected benefits of the system is less than the cost of applying it 4 % 28.6 3 % 21.4 1 % 7.1 5 % 35.8 0 % 0 COPY RIGHT 2012 Institute of Interdisciplinary Business Research 691

Table (16) Table of the arithmetic mean and standard deviation of the questions (13-19) Question Arithmetic mean Average measurement tool 13-Lack of field experience in applying the ABC system 14- Lack of qualified accounting and administrative systems that are eligible to apply the ABC system 15- High costs of the application of the ABC system 16- Lack of appropriate technology to apply the ABC system within the facility 17- Management believes that the current system is sufficient and that there is no need to apply a new system 18- Lack of sufficient information to apply the system 19- The expected benefits of the system is less than the cost of applying it 3.69 3 0.95 3.23 3 1.3 3.54 3 0.97 3.46 3 1.05 4.00 3 1.29 3.08 3 1.19 3.46 3 1.33 Standard deviation As noticed there is only one condition of the study sample that did not indicate that there are obstacles that prevent the application of the ABC system, its rate was 7.1%. Answers varied about the importance of the given obstacles, the highest rate reached 71.5% in the 17 th question that stated that Management believes that the current system is sufficient and that there is no need to apply a new system, which is an actual obstacle to apply a new system to the company, the reason to that could be the lack of knowledge in the elements of the new system. Also, most of the management employees are older than 45, as they did not endure programs and new systems, and they had no universal courses. The least approval percentage in the 14 th and 18 th questions state that: Question 14- Lack of qualified accounting and administrative systems that are eligible to apply the ABC system, as the acceptance percentage reached 35.7%, but the obstacle will be accepted because the arithmetic mean reached 3.23. The reason why the arithmetic mean was high is that 28.6% of the study sample answered neutral. Only 28.5% of the sample was rejected. Question 18: Lack of sufficient information to apply the system, the acceptance level reached 35.7%, but the obstacle will be accepted because the arithmetic mean for the answers was 3.08, which is in the acceptance region, as it is higher than the average measurement tool. 35.7% of the study sample answered neutral, 21.4% rejected. As noticed from table (16), all of the COPY RIGHT 2012 Institute of Interdisciplinary Business Research 692

questions were positive and larger than the average measurement tool, so the hypothesis is accepted. To illustrate this result, we will use the one sample T-test. Answers of the sample will be collected depending on the approval of the seven obstacles, and testing the acceptance or rejection of the hypothesis. The average measurement tool will be 21. The following table shows the results: Table (17) Results of the one sample T-test Views Arithmetic mean Standard deviation 13 24.46 1.15 Calculated T Tabulated T SIG T 3.018 1.782 0.011 According to the previous results, calculated T=3.018 is greater than its tabulated value (1.782). According to the rule the fifth hypothesis is accepted which states that the seven obstacles mentioned have an affect on applying the ABC system in the iron and steel companies. This means that the average answers for the questions (13-19) were higher than the average measurement tool (21). The arithmetic mean for the questions (13-19) 24.46 and that the significance level for the calculated T reached 0.011, which is less than 0.05, this confirms what was mentioned in the hypothesis. Results and recommendations: Results: According to the statistical analysis and the hypothesis tests, there are the results: Most iron and steel companies of Jordan do not apply the activity based cost system ABC; this is what the statistical analysis shows, as 71.4% of the study sample does not apply the system. There is an impact on profitability in applying the activity based cost system in the iron and steel companies of Jordan. As the average answers for the questions related to improving profitability and its relationship with applying the system was positive and higher than the average measurement tool. Applying the ABC cost system in the iron and steel companies of Jordan leads to making rational management decisions (decisions related to pricing, expansion, dispensing a particular product, continuing or closing a specific product line, measuring product efficiency), this is what the data statistical analysis confirms, as the arithmetic mean for the answers reached 33.05 which was higher than the average measurement tool (24). There are obstacles that prevent the application of the ABC system in the iron and steel companies of Jordan, as 92.9% of the sample reported that there are obstacles that prevent the application. Iron and steel companies of Jordan face several obstacles that prevent the application of the ABC system, most importantly: 1. Lack of field experience in applying the ABC system. COPY RIGHT 2012 Institute of Interdisciplinary Business Research 693

2. Lack of qualified accounting and administrative systems that are eligible to apply the ABC system. 3. High costs of the application of the ABC system. 4. Lack of appropriate technology to apply the ABC system within the facility. 5. Management believes that the current system is sufficient and that there is no need to apply a new system. 6. Lack of sufficient information to apply the system. 7. The expected benefits of the system are less than the cost of applying it. Recommendations: Based of above, there are some recommendations that can be implemented by the concerned companies and similar companies to take advantage of the results of the research: Starting to examine the possibility of applying the ABC system in the future, and keeping the thought of applying it, since it has many strategic advantages which we mentioned previously in the research. Restructuring the iron and steel companies of Jordan to comply with the activity based cost system (ABC) since the system represents a revolution in the recent accounting systems. Industrial and service companies are concerned about holding sessions by scientific institutions and academic societies, to introduce them to the activity based cost system (ABC), and the expected benefits from applying this system. Industrial companies that do not apply the activity based cost system (ABC), should take advantage of the field trials for the companies that apply this system, and take advantage of the scientific and practical experiences in this field. Companies should take advantage of the recent technologies, and information technology to lay the foundations that suit its businesses, to enable them to accommodate the different systems in developing their business, including the ABC system, as applying the activity based cost system has a high degree of technical complexity. And because of the enormous need of data and information, applying it manually increases the degree of implementation complexity. List of margins: Horngern Charles, Foster George, Datar sareecant, cost accounting, Hajaj translation, ahmad hamed, Dar Al-mareekh, Saudia Arabia, 1997 page 20. Abu Al-hayjaa, Khaled Sobhi, The activity based cost system, the condition of the industrial companies of Jordan, Master, Al-Albait university, 2006, page 16. Abu Alhayjaa, previous reference, page 16. Hecks Charles, The cost system according to activities in small and medium sized projects, Al- Jabali translation, Mohammad, Alzo ubi, Lutfi, scientific publishing and printing in King So oud university, Saudia Arabia, 1998, page 41. Jerrison, Administrative accounting, Issam Al-Dean translation, Mohammad, Dar Al-Mareekh, Saudia Arabia, 2002 page 237. Jerrison, previous reference, page 238. Adams, management Accounting Information,2000, p832 COPY RIGHT 2012 Institute of Interdisciplinary Business Research 694