June 2000


By Douglas T. Hicks
John Wiley and Sons, Inc., $69.95
Reviewed by Ron Fink, CPA, and Jim Morrell, CPA

Douglas Hicks approaches activity-based costing (ABC) passionately and with an obvious command of the subject. By highlighting the shortfalls of many of today's cost systems, he sheds new light on the benefits of ABC and gives the reader an excellent treatise with detailed examples. He emphasizes that ABC should aim for reasonableness rather than precision.

The author reminds the reader that "generally accepted accounting principles are not designed to provide cost information that represents economic reality." He also strongly points out that price is determined by the market, not cost. In Hicks's words, the only relevant cost information is that which provides the basis for decision making. Business owners and managers and their advisors need information on incremental costs, those costs that will be increased, decreased, or eliminated by contemplated changes.

Although economists emphasize that fully allocated costs do not represent economic reality, Hicks spends the bulk of the book and its examples on fully allocated costs. The book's subtitle "for small and mid-sized companies" should have led him to give more coverage to incremental costs for decision making.

In addition, an electronic version of the lengthy example would have been a plus, enabling readers to make changes and adjustments and see the results. These criticisms aside, this book would be a beneficial addition to a cost accountant's library. *

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