Chapter 9

An Ontology for Activity-Based Cost Management

By: K. Donald Tham

Table of Contents

9.1 Introduction

9.2 The TOVE Testbed and the Formalization of ABC

9.3 Competency of the Cost Ontology

9.4 Cost Ontology for TOVE

9.5 Resource Cost Point of Activity, a, for Resource, r, at Time point, t: cpr(a,c,t,r)

9.6 Cost point of Activity, a, at Time point, t: cpa(a,c,t)

9.7 Taxonomy of Resource Cost Units

9.8 Taxonomy and Axioms for Cost Orders

9.9 Activity Cost Taxonomy and Axioms

9.10 Activity Costs for Cost Orders

9.11 Successor Cost Axioms for Cost Computations of an Activity for Status Intervals of a Resource

9.12 Applying cpr(a,c,t,r), cpa(a,c,t) and cpo(c,x,t) for Cost Management

9.13 Computing cost point of subClass activity, ai

9.14 Computing cost point of Class Activity, a'ix, required to satisfy cost order, x

9.15 Computing cost point of cost order, x

9.16 Computing cost point of cost order class, xc

9.17 Application of the TOVE Cost Ontology towards Activity Based Costing (ABC) System.

9.18 Conventional (Traditional) Cost Accounting Systems versus ABC Systems [Cooper 90]

9.19 Mapping the Conceptualization of ABC with the Cost Ontology [refer figure 7]

9.20 Cost Terminology and Semantics

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9.21 Symbology

There is an urgent need to formalize Activity-Based Costing (ABC) for purposes of implementation and usage in enterprises so that enterprises have access to the critical element of global success, viz., strategic management accounting. To make this possible, this chapter includes a core cost ontology and micro-theory of costing for enterprise modelling that spans the knowledge representation of activity, status of activity, time, causality, and resources. This ensures that ABC may be generically deployed in any enterprise to achieve effective activity-based cost management irrespective of the enterprise belonging to the manufacturing or service sectors.