Activity based costing in China: a case study of Xu Ji Electric ... - CIMA

Activity based costing in China: 

a case study of Xu Ji Electric Co. Ltd 

Research executive summary series 

Volume 7 | Issue 13 

Dr Lana Yan Jun Liu 

Newcastle University, UK 

Professor Fei Pan 

Shanghai University of 

Finance and Economics, China

Key findings: 

• This ABC model is used to capture direct costs and variable overheads, which were 

lacking in the SOE’s traditional costing systems. 

• The ABC experience has successfully induced standardisation in their working 

practices and processes. Standardisation was not a common notion in Chinese 

culture or in place in many Chinese companies. 

• ABC also acts as a catalyst to Xu Ji’s IT developments – first accounting and office 

computerisation, and later the ERP implementation. 

• The common ‘top-down’ management style and organisational culture among SOEs 

worked well when instigating innovative ideas and inducing corporate-wide learning. 

• Top management’s commitment to trying out new management ideas and investing 

in new technology has been the unique feature in this research organisation.

Executive summary 

This project investigated the implementation of activity-based 

costing (ABC) at Xu Ji Electric Co. Ltd (Xu Ji), a large Chinese 

manufacturing company. Xu Ji is a state-owned enterprise (SOE), 

turned public limited company (PLC). The company piloted 

ABC implementation in one of its main production divisions in 

December 2001, when ABC concepts were at a theoretical level 

in China (Liu and Pan, 2007). Two more attempts to extend the 

use of ABC in one of its subsidiaries and sales functions took 

place in 2005 and 2008. Major events took place during the 

latter research endeavour, including two major acquisitions 

– first by a pension fund and later by the national grid and 

recent decision to implement an enterprise resource planning 

(ERP) system. These events provided a unique opportunity to 

unveil factors pertinent to organisational decisions towards 

information system implementation, to extract ‘real-life’ 

interactions between personnel at various organisational 

hierarchies; and to evaluate complex relationships between 

changes, organisational and individual learning. 

Chinese management styles rely more on managing people 

and relationships – Chinese management ethos – than on 

technological systems and management tools. The level of 

office and accounting computerisation and IT-enabled business 

solutions is not as advanced as those in the west. Xu Ji started 

from a very basic level, building financial accounting systems 

and office computerisation before implementing the ABC 

system which captured direct costs and variable manufacturing 

overheads before processing. 

The main achievements of Xu Ji’s ten year ABC endeavour are 

that ABC radically changed the SOE, turned PLC’s traditional 

costing systems and induced standardisation in their working 

practices and processes. ABC also acts as a catalyst to Xu Ji’s IT 

developments – first accounting and office computerisation and 

later the ERP implementation. 

One distinctive feature of Xu Ji’s ABC experience is the ‘topdown’ 

instigation and enthusiasm of trying out innovative 

ideas and inducing corporate-wide learning. While such a 

‘top-down’ approach is not so popular in the west, it is fairly 

common amongst SOEs, particularly in the northern part of 

China. This approach worked well in Xu Ji, allowing them to 

move quickly from imitating western ideas to developing their 

own – independently developed Relay’s ABC system – and make 

informed decisions using sales activity analysis. 

1 | Activity based costing in China: a case study of Xu Ji Electric Co. Ltd 

Key issues 

The key issues underlying the research project are whether an 

ABC technique can be successfully implemented in a Chinese 

organisational setting and how ABC information can be used 

effectively to support Chinese management decision making. 

Many advanced management accounting techniques originated 

in developed economies – for example, ABC from the US and 

target costing/kaizen costing from Japan. These techniques have 

inevitable imprints of the cultures from which they originated. 

Therefore in order to obtain real benefits from these advanced 

management accounting techniques, one should take serious 

account of one’s own management ethos and organisational 

and national culture (Nishimura, 2005). 

The Chinese economy has been booming for three decades, 

mainly due to the availability of abundant labour at relatively 

competitive prices in the manufacturing sector. Chinese 

companies have been advancing their competitiveness through 

rapidly developed advanced manufacturing and information 

systems. By contrast, advancements in management accounting 

techniques and IT-enabled business solutions have been 

painfully slow. 

This research coincided with some major organisational changes, 

including a cash crisis caused by rapid expansions in 2003-2007, 

two acquisitions during 2008-2011 and an ERP implementation 

that began in 2010 (see Appendix 1). In addition, Xu Ji has 

decided to delay further refinement of the ABC system until 

the completion of the ERP implementation. Nevertheless the 

project provides a rich account of how ABC systems intertwine 

with organisational changes; how ABC implementation enhances 

individual and organisational learning; and how the Chinese 

management ethos promote and/or impede the ABC adoption.

Findings – Xu Ji’s ABC systems 

ABC system at the first production division 1 

Prior to the ABC introduction in 2001, Xu Ji operated a 

traditional Chinese state-enterprise accounting system (see 

Figure 1). A large amount of manual book keeping work was 

involved. Accounting was driven predominantly by external 

financial reporting purposes and inaccuracy of product costs 

became inevitable. 

At this time, Xu Ji underwent a series of flotations (Liu and 

Pan 2007), following China’s introduction of free market 

competition. Xu Ji, as a former SOE used to produce products 

based on a state production quota and was forced to face 

up the market competition. The inaccuracy of the traditional 

costing information seriously impeded Xu Ji’s ability to compete 

on pricing. Xu Ji urgently needed a better costing system so 

commissioned ABC implementation. The two main tasks for the 

ABC system were: 

• to trace direct labour costs directly to product and client 

contracts 

• to allocate manufacturing overheads on the basis of up-todate 

direct labour hours to contracts. 

Figure 1: Xu Ji’s traditional costing system 

Direct material 

Direct labour 

Overheads 

Directly charged to 

Allocated based on standard 

direct labour rate* 


The ABC system was successfully implemented in 2003 after 

some teething problems were solved. Some problems included 

compatibility of information systems and misinterpretation of 

ABC concepts by IT programmers (see Figure 2). 

In 2004, the organisation was restructured into independent 

companies – i.e. electricity grid, industrial electric and energy. 

Internal management structures were subsequently changed, 

which resulted in abandonment of some activity cost drivers. 

For example, new management of product line testing and 

engineering design activity cost centres switched to other 

forms of monitoring front-line performance instead of using 

respective testing labour hours and design hours (see Table 1). 

Therefore, testing labour hour and design hour information was 

not updated and perceived to be ‘extra work’ by front-line data 

input staff. 

There have been continuous and rapid organisational structural 

and management changes since 2003. For example, changes to 

the management structure led to a merger of panel installation, 

panel wiring and wire labelling activity cost centres, to become 

one independent profit centre. A fixed value was decided 

between top and line managers to assign to each panel, 

however managers claimed they referred to the original ABC 

cost to set the value. Nevertheless some quantitative cost 

Production 

department 

1, 2, 3 

Product 

contract 

1, 2, 3 

*Note: In Xu Ji, direct labour cost – instead of being charged directly to products – was allocated first to production departments then to finished products. 

This practice was common in some Chinese manufacturing companies as it was relatively difficulty to track direct labour to individual products without using 

sophisticated tools such as Manufacturing Resource Planning (MRP) systems or some elaborate recording mechanism within a mass production. 

1 In 2001, Xu Ji’s main production departments comprised of the first production department (FPD) and second production department (SPD). FPD 

manufactures Xu Ji’s high yield products such as high-voltage electric equipment. SPD manufactures relatively low yield products such as safety and 

automation systems.

drivers – e.g. number of leads – faced threats of being nonrecorded 

or inaccurately recorded. Managers gradually moved to 

use profit and/or revenue measures to monitor performances. 

These changes have limited the impact of ABC system and 

accuracy of ABC information. 

ABC system at the Relay subsidiary 

Xu Ji Relay company manufactures many different relay 

products and sells internally to other Xu Ji subsidiaries as well as 

outsiders. The organisational structure is independent to the rest 

of the group and has full financial autonomy. Relay operates in 

a highly competitive and saturated market, so its main aim has 

been to survive and avoid closure. An urgent need was to get 

Figure 2: The process of Xu Ji’s ABC system – 2002 


their product costs right, as commented by one of its managers 

that, ‘Our selling prices were all over the place as we did not know 

exactly how much it cost us to make one relay, would one type of 

relay cost more or less, to top it all, we were making losses, large 

unsold stocks…’ 

With the lessons learnt from the ABC implementation, Xu Ji’s 

ABC team, together with Relay accountants and the software 

company – which developed FPD’s ABC system – embarked 

on developing its own ABC system at Relay in late 2004. The 

cost structure in Relay comprised 85% direct materials and 

15% direct labour, variable and fixed overheads. During the 

implementation, the team realised the main inaccuracy of 

Warehouse Payroll Fixed assets General ledgers External data 

Resources: raw material, salaries, depreciation, 

other expenditures and other data 

Traceable to product lines Not directly traceable to product lines 

Activity cost centres 

Contract costs 

Activity cost centres 

Use relevant activity drivers to allocate 

Use activity cost drivers to allocate

product costs was not the use of out of date planned material 

cost information but the lack of standardised working practices 

and lack of inventory control. Relay still recorded inventory 

manually. Huge discrepancies between accounting figures 

and physical stock were treated as monthly manufacturing 

overheads. Xu Ji’s top management decided to invest in office 

computerisation at Relay. The first step was to develop a 

Table 1: Sample of activity cost centres and cost drivers – 2002 

Department Activity cost centres Cost drivers 

General Basic research and development Forecasted product line revenue 

Marketing Finished contract revenue 

General administration Number of employees at each product line 

Production Panel installation Number of panels 

Panel wiring Number of leads 

Set of terminals Number of panels 

Wire labelling Number of leads 

Electric case testing Test labour hours 

Material management Finished contract revenue 

Management Finished contract revenue 

Warehouse management Finished contract revenue 

Department Activity cost centres Cost drivers 

Product line Customised research & development Contract forecasted revenue 

Product line testing Test labour hours 

Engineering design Design hours 

Marketing research Finished contract revenue 

Onsite testing and maintenance Finished contract revenue 

Management Finished contract revenue 


computerised material cost recording system in order to capture 

the actual material quantity information and stock movements 

between warehouse and assembly lines. In addition, standardised 

procedures for recording and inventory control were put in 

place and enforced by building into employees’ personal key 

performance indicators (KPIs). It took Relay nearly four years 

between 2005 and 2008 to fully embed these changes.

After a trial run in 2009, Relay’s ABC system started to produce 

monthly ABC reports (see Figure 3). The ABC system matched 

its organisational structure and cost drivers for allocating facility 

sustaining costs are shown in Table 2. 

In 2010 Relay achieved a record annual sales increase of 50% 

higher than 2009 and a net profit margin increase of 13%. Staff 

Table 2: Relay’s activity cost centres and cost drivers 

Departments Activity cost centres Cost drivers 

Facility sustaining costs 

General Executive office Number of assemble line employees 

Finance Number of assemble line employees 

Technical support Chief engineer office Proportion of product revenue of assemble lines 

Technical support office Proportion of product revenue of assemble line 

Production Production Proportion of product revenue of assemble line 

Warehouse Proportion of product revenue of assemble line 

Marketing Marketing Proportion of product revenue of assemble line 

Assemble line costs 

After-sales Proportion of product revenue of assemble line 

Assemble lines Direct relay Direct labour hours 

Intermediate relay Direct labour hours 

Transformer Direct labour hours 

Timer relay Direct labour hours 

Wring assemble Direct labour hours 

WGB assemble Direct labour hours 

Transform relay Direct labour hours 

Intermediate transform replay Direct labour hours 

Signal relay Direct labour hours 

Packaging Direct labour hours 


members at Relay gained positive experience from the ABC 

implementation. The Relay accountant commented, ‘I am now 

very confident at our product costs. In turn our marketing people 

can compete faster and better in our market places.’

Added the manager, ‘In our Relay markets, timing is very 

important. We can now give quotes in a click of button. We do 

not keep large stock now and produce on order. Our material cost 

Figure 3: ABC process at Relay 

Raw materials 

Executive office 

Direct Relay 

Directly traced to 

Chief engineers 

office 

Intermediate Relay 

Transformer 

Finance office 

Production 

planning office 


Marketing 

Facility sustaining costs 

Timer Relay 

Assemble lines 

Wiring assemble 

WGB assemble 

Product costs 

recording system gives us actual cost information. This in turn has 

made our staff more aware of cost savings. For example they now 

make full use of one piece material before discarding it...’ 

Still Relay assemble 

Warehouse 

Technical 

support 

Transform Relay 

assemble 

After-sales 

Use appropriate cost drivers to allocate 

Intermediate transform 

Relay assemble 

Signal Relay assemble 

Packaging

ABC analysis at the sales companies 

The sales companies used to be subsidiaries of Xu Ji Group (XJG) 

– see Figure 4. 

Prior to the realignment, Xu Ji had no direct control over the 

ways in which the sales companies. operated as XJG decided 

on selling prices of products transferred from Xu Ji to the sales 

companies. Being a traditional production unit, Xu Ji did not 

have any marketing and sales expertise. The realignment of 

Figure 4: A schematic diagram of Xu Ji’s data flow process – 2001 

Customers 

Tender 

bids 

Sales companies 

XJG 1 

Production 

planning 

division 

Xu Ji PLC 3 

Receive 

contracts 

Forward customer’s contracts 

Mechanic 

Chemical 

Pressure 

Heat 

Place production plans based 

on contracts 

Place component production 

plans to assembly divisions 

Notes: 

1. The sales companies of XJG is an independent business unit, which deals with all sales orders for the group. The sales companies charges Xu Ji for relevant 

expenses except the salary costs of its sales staff. 

2. Yi Wan Logistic is one of the subsidiaries of the group and the sole authorised purchasing company for the group. The company purchases all raw materials 

and components which are not manufactured internally. Yi Wan Logistics charges a commission of 0.1% for all purchases. 

3. The main functions of the production planning division are to set production plans based on customers’ specifications and place production orders to both 

production departments and component assembly divisions. 

Source: Liu and Pan (2007) 


some sales functions with the three companies brought Xu 

Ji much needed sales and marketing expertise. However Xu 

Ji top management still did not have enough know-how to 

manage the sales operations, sales people or expenses control. 

For example, Xu Ji’s CFO commented that, ‘I wanted to know 

what the industry norm is in terms of selling expenses over sales 

revenue… it gets more complicated when you need to spend or 

invest now to build relationships, in order to get future business or 

contracts. What is the balance?’ 

Xu Ji co. Ltd 

The first production 

department 1 

The second 

production 

Power switch 

department 

Other production 

departments 

Internal transfer of assembled components 

Transfer of finished products to sales companies 

Suppliers 

Yi Wan 

logistic 2 

Purchase 

material 

Place 

material 

purchase 

orders

The managing director of Electricity Grid stressed that, ‘Our 

ABC system is basically to capture direct costs and manufacturing 

overheads, over which an average of 80% is the cost of raw 

materials, determined by the markets. We have done work to 

streamline our processes as well as to control our costs since [the 

ABC implementation]. We managed to become very lean. Other 

costs such as management and sales expenses have been creeping 

up year on year and are outside of the ABC system. So it is now 

time to take a closer look at these costs and find ways to control 

them…’ 

Table 3: Activity analysis of sales and proposed activity cost drivers 


The researchers teamed up with the Xu Ji ABC team and set up a 

project team, aiming at undertaking a detailed analysis of sales 

activities at the three sales companies. The original objectives 

were to establish appropriate activity cost drivers which 

linked sales expenses to contracts and to incorporate the sales 

expenses into the existing ABC system. 

Based on detailed analysis, the sales expenses were analysed 

into stages based on the nature of sales activities and associated 

cost drivers were proposed in Table 3. 

Sales expenses (activity involved) Activity level Proposed cost drivers 

Front-stage – marketing activities to enter new 

markets and/or general profile-raising activities 

Salaries* 

Travelling costs 

Marketing materials 

Mid-stage – contracts-related 

Facility-level Average or other subject measures – e.g. 

geographic sales percentage 

NB: general expenditures with no apparent or 

specific contracts 

Salaries of sales staff Sustaining-level Geographic area – first trace to geographic areas 

then allocated to contracts value in geographic 

area 

Travelling costs Sustaining-level 

Corporate entertainment Sustaining-level 

Material costs of bid pack Batch-level Traceable to contracts 

Bid cost Batch-level Traceable to contracts 

Commissions Batch-level Traceable to contracts but unattainable – 

temporary solution is to use contract value 

Support costs Facility-level Average or other subject measures 

Final stage – after sales 

Travelling costs Batch-level Traceable to contracts 

Salaries Batch-level Traceable to contracts 

Material costs Unit-level Traceable to contracts/clients 

* This only includes salaries of sales staff members assisting the marketing activities. It does not include those of chief executives and general managers of sales 

companies.

However, the project team encountered resistance from the 

sales companies during the process mapping exercise and 

activity analysis. This was partly due to the inherited notion 

that the sales companies were highly regarded by senior 

management as being the ‘bread-winner’. Sales managers 

and staff members saw this ABC exercise as a ‘threat to their 

autonomous status,’ although they became part of the Xu Ji. 

In addition, non-standardised practices meant that the above 

proposed traceable costs were unattainable. For example, 

commissions were highly commercially sensitive and not 

normally disclosed even in the internal accounting system. There 

was an implicit and complex link between sales activities and 

efforts (expenses) and winning contracts (sales). For example, 

sales people spent some time and money on one client with no 

success. After a few years, the client gave a contract without 

Xu Ji needing to spend any money. For the time being, the 

project team proposed to use contract value to allocate the 

commission, as some commissions were based on a certain 

percentage of the contract value. 

The project team’s analysis of sales activities provided the top 

management with some useful management ideas, including 

enforcing some standard procedures – i.e. sales activity plan, 

identification of contract numbers/activities when submitting 

expense claims. These procedures have since been in place. 

Summary 

It is evident that ABC systems can work more effectively in a 

relatively stable environment though may not work so well in 

a changing/unstable environment. Further major organisational 

events including acquisition and ERP implementation, can have 

profound impacts on management’s commitment to further 

develop the ABC system and may adversely affect the use of 

ABC information. 

Xu Ji’s observed ABC systems were unremarkable, in that 

they only tackled direct costs and variable manufacturing 

overheads. Given their traditional costing system was not even 

able to directly match direct labour costs to products, the ABC 

implementations have made marked improvement and allowed 

them to obtain some accurate product cost information. The 

sales activity analysis was a good attempt, in that the ABC 

information enabled Xu Ji top management to understand sales 

activities better. This attempt also marked the beginning of ABC 

being used as a management tool to enable top management 

to exercise more informed control over sales expenses and sales 

companies. 


ABC as a tool for learning 

ABC implementation has provided a unique opportunity to 

accelerate learning throughout Xu Ji. 

It has changed accountants’ perception of accounting. The 

experienced accountants, had previously only performed 

monthly financial reporting and book keeping. An experienced 

accountant commented, ‘This [ABC] allows me to use accounting 

information for internal purposes.’ 

The group cost accountant/ABC team member commented, 

‘Our product cost is more accurate than ever, because I do not get 

questions since [ABC system was implemented].’ 

The newly graduated accountants were able to have first-hand 

experience of a real-ABC system. A junior accountant noted, 

‘I learnt ABC theory at my western accounting module at the 

university. I never thought that we would be implementing this 

system.’ 

Operations managers from engineering backgrounds accepted 

the new system quicker than the accountants. They fully 

embraced the initial ABC implementation and adapted ABC 

concepts to improve their operations. The concept of non-value 

added activities and process mapping were conveyed and led 

operations managers to look into ways to identify waste in their 

processes. For example, reorganisation of assembly line layout 

to reduce the moving time and consciously incorporation of 

standardised components at product designs. 

Top management became more confident of the accuracy of 

their core direct costs and accepted ABC methodology as an 

analytical tool for new/re-organised business functions. 

Influencing factors on Xu Ji’s ABC implementation 

Technological factor – ABC as catalyst to advancement of 

information systems 

Xu Ji’s initial ABC attempt prompted the company’s decision 

to install a corporate financial accounting system. They used 

a local IT firm which was specialised in accounting software 

and new to ABC concepts. After fixing some teething problems, 

their programmed ABC software worked well with its financial 

accounting system. This experience paved the way for the ABC 

implementation at Relay.

Since 2000, Xu Ji has been expanding rapidly to create 

economies of scale in the face of fierce market competition. The 

existing financial accounting and ABC systems were no longer 

able to cope with growing needs for management accounting 

information. Xu Ji top management realised the bottlenecks that 

the ABC system faced and decided to implement a corporatewide 

ERP system 2 . 

It is notable that the initial ABC attempt was the catalyst for Xu 

Ji’s computerised accounting system advancement however it is 

too early to say whether or not the latest ERP advancement will 

be the catalyst for further ABC enhancement. 

Organisational factors – continuous changes adversely 

impacts ABC 

Xu Ji’s organisational and management structure has been 

continuously changing and growing. They produce customised 

products, dependent on a customer’s specified requirements 

and the production processes are constantly changing. These 

changes pose one of the biggest challenges on the validity of 

the ABC system and relevance of the information it produces. 

The ABC team spent more time on trying to keep up with the 

changes and keep the ABC models up-to-date, rather than 

producing some useful ABC information for management 

purposes. It is not surprising the operations managers’ support 

and zealousness for ABC waned as they did not see any tangible 

benefits from the ABC information. For example, ABC was not 

used in divisional performance measures nor included in their 

KPIs. This was compounded by the fact that ABC was not just 

implemented in other parts of the value-chain – e.g. the sales 

company. 

On the other hand, Relay’s ABC implementation is a different 

story. The Relay production process and techniques involved are 

rather stable. As an independent subsidiary, Relay has relative 

autonomy over its value-chain – i.e. purchase, production and 

sales. Relay’s ABC system is able to account for the entire 

process. The most benefit Relay has gained from the ABC 

implementation is that ABC induces standardised procedures 

and inventory control. 


Cultural factor – top-down and malleable 

Xu Ji demonstrates a strong sense of top-down organisational 

culture. The former and current CEOs are keen to trial innovative 

ideas and Western advanced management techniques such 

as economics-value added, KPIs, six-sigma and ABC. This 

top-down instigation worked quite well in the initial stages of 

ABC implementation when knowledge was severely lacking. 

The learning atmosphere at Xu Ji was also induced by forms of 

training and assessment. For example, middle-line managers 

were required to present their divisional achievement using 

these techniques. 

The effectiveness of this top-down instigation became malleable 

when knowledge grew, and production managers demanded 

the use of ABC in sales and other overhead areas. However the 

transparency ABC brought posed a threat to the sales companies 

autonomy and its niche so sales managers strongly resisted 

extending ABC systems to sales activities. 

External factors – market competition 

To enable its competitiveness and to some extent survival, Xu 

Ji embarked on a rapid expansion strategy through mergers 

and acquisitions during 2003-2007. This helped Xu Ji to win 

businesses by creating economies of scale, it also caused serious 

financial strains. The economic downturn in 2007 worsened 

Xu Ji’s working capital position so they sought a capital 

injection from a large pension fund company in 2008, which 

later sold 60% of its stake to the national grid in 2010. This 

quick succession of acquisitions had profound impact on Xu Ji 

management and staff. 

Although top managers still supported the ABC project, it was 

inevitable their focus was forced to move to more pressing 

matters. The financial strains also meant that limited financial 

resources were available to support the role out the ABC to the 

rest of Xu Ji. 

2 Ironically, at the initial ERP briefing meeting in 2010, the ERP programmers did not think the ERP system could either create a data-exchange link to the 

existing ABC system or incorporate the ABC concepts within the ERP programme. However, this view has changed to incorporate the ABC concepts in ERP’s 

management reporting system.

Reference 

Jönsson, S. & Lukka, K., 2005. Doing Interventionist Research 

in Management Accounting, GRI-rapport 2005:6, Gothenburg 

Research Institute. 

Liu, L.Y.J. & Pan, F., 2007. The implementation of Activity-Based 

Costing in China: An innovation action research approach. British 

Accounting Review, 39(3), pp. 249-264. 

Nishimura, A., 2005. The Development of Management 

Accounting and the Asian Position, International Journal of 

Accounting Literature, Vol. 1, No. 1, pp. 51-71. 

Additional outputs 

Results related to the first part of the research were published in 

2007 BAR. A second paper is currently under review. 

Liu, L. Y. J. & Pan, F.. The IT bandwagon: making senses of an 

activity-based costing system implementation in a Chinese 

manufacturing firm, information and organisation. 

Acknowledgments 

The authors gratefully acknowledge the support of CIMA’s 

General Charitable Trust in the undertaking of the research on 

which this project is based. They also express their gratitude 

to all participants of Xu Ji Electrics Co. Ltd. and Xu Ji Group 

Company for their enthusiastic efforts and contribution that 

made this project possible. 

Contact details 

Accounting and finance 

Newcastle University Business School 

Newcastle University 

E. y.j.l.liu@newcastle.ac.uk 

E. lana.liu@ncl.ac.uk 

11 | Activity based costing in China: a case study of Xu Ji Electric Co. Ltd

Appendix 1 – Account of research phases, major organisational events and participants involved 

Research 

nature/phase 

Historical 

background 

I II III IV V Total 

1970 – 2001 2001-Jun 2003 Jul 2003- May 

2004 

Jun 2004-Nov 

2005 


Dec 2005- 

Dec 2007 

Jan 2008 – Mar 2011 

Length of time 30 months 11 months 18 months 25 months 39 months 123 mths 

Part 1: 

ABC 

implementation 

at the first 

production 

division 

Archive 

research 

Active design 

and build ABC 

model, redesign 

work processes 

Research activities ABC concept 

training and 

field study 

Participants 

involved 

Part 2: 

ABC analysis 

at three sales 

companies 

(functional units) 

Accounting 

and operations 

personnel 

Design 

standard ABC 

system; 

ABC system 

training, 

interviews and 

focus groups 

in August 

2003 

ABC team and 

operations 

managers 

Ongoing ABC 

system updates 

Interviews and 

focus groups in 

November 2005 

ABC team and 

operations 

managers 

Initiation 

of rolling 

out ABC to 

company 

wide 

Verification of ABC 

models and activities 

be in line with changed 

organisational structure 

Interviews Retrospective study with 

opinions gathering 

ABC team, 

group 

accountants 

and top- and 

middle-line 

managers 

Semi-structured interviews 

with top and front line 

managers; accounting staff; 

and ABC team 

Initiating and undertaking 

client-based ABC 

profitability analysis and 

sales control system 

Research activities ABC application training 

and Interviews 

Participants 

involved 

Part 3: 

ABC development 

at Xu Ji relay 

subsidiary – 

wholly driven by 

Xu Ji ABC team 

Initiate and 

undertook 

ABC feasibility 

analysis in 2004 

and built ABC 

model in 2005 

Established 

standard 

inventory 

control 

system in 

2006 and 

developed 

batch-based 

ABC system 

Top and middle line sales 

managers, accountants of 

sales companies. 

• 2007-08 ABC user 

training and refining 

inventory system 

• 2009 refining ABC 

system 

• 2010 officially produce 

ABC monthly report 

• High user acceptance 

due to the accuracy 

Research activities Interviews of ABC team 

members, relay group 

accountant and ABC 

information users

Research 

nature/phase 

Major corporate 

events 

Management 

accounting 

information 

system 

development 

Mergers and 

acquisitions 

Historical 

background 

I II III IV V Total 

Computerised 

financial 

reporting 

system, 

concurrent with 

ABC system 

implementation 


Acquired 

one of XJG’s 

subsidiaries 

in 2006 

and five 

subsidiaries 

in 2007 via 

shareholding 

Started implementation 

of a corporate wide ERP 

system since Jan 2010 

XJG was acquired by a 

pension fund company in 

2008, who subsequently 

sold 60% to National Grid 

in 2010

Chartered Institute of 

Management Accountants 

26 Chapter Street 

London SW1P 4NP 

United Kingdom 

T. +44 (0)20 7663 5441 

E. research@cimaglobal.com 

www.cimaglobal.com 

© August 2011, Chartered Institute of Management Accountants

Activity based costing in China: a case study of Xu Ji Electric ... - CIMA

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