Design of Activity-Based Cost Accounting System for Software

Enterprises Against the Background of Big Data Analysis

Xiaoxia Ke

School of Economic Management, Ningxia Institute of Science and Technology, Shizuishan, Ningxia, China

Keywords: Software Enterprise, Activity-Based Costing, Big Data Technology, Cost Accounting System.

Abstract: Based on the related theory of activity-based costing, this paper analyzes the cost structure and characteris-

tics of software enterprises through big data technology and further evaluates the application necessity and

feasibility of activity-based costing in software enterprises in such an era of big data. The basic principles of

activity-based costing are adopted to design a set of activity-based cost accounting systems for software en-

terprises in terms of confirming activities and activity centers, determining resource costs, selecting both

resource and activity drivers, deciding costing objects and costing periods, and setting up account systems,

aiming to improve the costing accuracy, upgrade the level of cost management, and more facilitate the de-

velopment of software enterprises.

1 INTRODUCTION

The software industry, a national strategic emerging

industry, constitutes the important foundation for the

national economy and social informatization. As

shown by the data in the 2021 Statistical Bulletin of

Software and Information Technology Service In-

dustry released by the Ministry of Industry and In-

formation Technology of the People's Republic of

China, China's software industry registered an oper-

ation revenue of 949.94 billion yuan in 2021 with an

increase of 17.7% over the same period of the pre-

vious year. By the end of 2021, China boasted more

than 40,000 IT companies and 809,000 employees.

In such an era witnessing the rapid development of

the software industry, the key to the development of

current software enterprises lies in how to scientifi-

cally conduct cost accounting, improve cost control

and make accurate decisions. While the current cost

accounting of software enterprises still features tra-

ditional costing methods, which fail to accurately

account for the product cost of software enterprises

and provide the correct accounting information, thus

affecting the decision-making and development of

software enterprises.

On August 16th, 2013, the Ministry of Finance

issued the Enterprise Product Costing System (for

Trial Implementation) to stipulate that software

enterprises should adopt activity-based costing for

cost accounting. Activity-based costing refers to a

way of cost accounting and management based on

dynamic tracking and feedback to measure activity

and cost objectives and assess work performance

and resource consumption. With activity costs cal-

culated based on resource drivers and product costs

based on cost drivers, the management level of en-

terprises can be effectively enhanced from the basic

level of cost management, which will, in turn, pro-

mote the production and management of enterprises.

During the production process, software enterprises

tend to consume fewer direct costs but more indirect

costs, accounting for a larger proportion of total

costs. Such a characteristic of the software industry

fits in the implementation requirements of activi-

ty-based costing. At the same time, big data tech-

nology provides technical support and development

opportunities for the promotion and application of

activity-based costing. It is characterized by huge

data volume, fast data generation speed, various data

types, concerns about related relationships, etc. This

technology can solve the bottleneck of driver analy-

sis and complex multi-level calculation in the appli-

cation of activity-based costing from various aspects

such as data extraction, data analysis, data calcula-

tion, and data processing, which in turn facilitates

the application of activity-based costing. Therefore,

it is imperative to promote activity-based costing in

China's software enterprises in the era of big data.

Ke, X.

Design of Activity-Based Cost Accounting System for Software Enterprises Against the Background of Big Data Analysis.

DOI: 10.5220/0011752100003607

In Proceedings of the 1st International Conference on Public Management, Digital Economy and Internet Technology (ICPDI 2022), pages 565-571

ISBN: 978-989-758-620-0

 2023 by SCITEPRESS – Science and Technology Publications, Lda. Under CC license (CC BY-NC-ND 4.0)

565

2 RELATED CONCEPTS OF

ACTIVITY-BASED COSTING

The concept of activity-based costing was first pro-

posed by American scholars Robert S. Kaplan and

Robin Cooper in the 1980s; that is, indirect resource

consumption is allocated according to resource and

cost drivers to make the cost allocation results more

scientific and reasonable, thus improving the cost

management system of enterprises and creating

conditions for raising the cost accounting accuracy

and the superiority of enterprise management deci-

sions (Robert, Robin, 1998). The activity-based

costing, centered on activities, guarantees the rea-

sonable identification and calculation of all the ac-

tivities that exist in the production and management

of enterprises. The resource consumption of each

activity can also be properly calculated to select an

effective activity driver to reasonably allocate the

resource costs to different products (Guo, 2019).

And the following several elements are included in

activity-based costing.

2.1 Resource

Resource refers to the human, material, and tech-

nical resources consumed in the production and

operation of the enterprise to obtain economic bene-

fits. The role of resources under activity-based cost-

ing is to be treated as the target of allocation at the

starting point of all accounting activities and also the

initial point of departure.

2.2 Activity

Activity, carried out for a specific goal, stands for a

link between resources and cost objects. Each link

and process in the production and operation process

can be regarded as an activity.

2.3 Resource Driver

Resource driver, whose foundation is to reasonably

allocate production and operation costs, is the way

and reason behind the consumption of each activity,

and also the main cause influencing the production

and operation costs. It exists as the most appropriate

indicator of the intensity and frequency required by

activities, costs, or other resources.

2.4 Activity Driver

With the activity costs apportioned to expense tar-

gets or allocated to other activities, the status of the

consuming activity can be reflected. For example,

the activity driver of information services falls on

the number of services.

2.5 Activity Center

The fact that activities sharing similar objectives can

be combined and organically connected, given the

unified activity driver, depends on the role of the

activity center. The activity center can clearly sum-

marize the related activities for the enterprise to

manage.

3 COST COMPOSITION AND

CHARACTERISTICS OF

SOFTWARE ENTERPRISES

3.1 Cost Composition of Software

Enterprises

Through the analysis of big data technology, the cost

composition of software enterprises can be divided

into the following categories.

3.1.1 Human Costs

Differences exist between software enterprises and

traditional manufacturing enterprises. Software en-

terprises are those selling wisdom, products, and

services that are often tailored to the needs of the

customers. In this way, the highly sophisticated

talent reserve and regular training of software per-

sonnel highlight the importance to software enter-

prises, which leads to higher human costs.

3.1.2 Software Development Costs

Software development costs usually include soft-

ware development costs tailored to the user and the

development costs of new projects, of which the

development risks and difficulties of new projects

are relatively high. This, to a certain extent, increas-

es the development costs of new projects and results

in higher development costs for new projects than

general software development.

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3.1.3 Enforcement Costs

For those sold software products, software enter-

prises provide the expenditure for installation, de-

bugging, training, acceptance inspection, and

maintenance services for customers. Software prod-

ucts, unlike other products, require software enter-

prises to not only provide all the funds for software

implementation but also follow up on its subsequent

application throughout the implementation process

and after-sales services, leading to an increase in

software enforcement costs.

3.1.4 Hardware Consumption Costs

The material assets largely possessed by software

enterprises are electronic equipment, which consti-

tutes hardware consumption costs of software enter-

prises. Compared with other material assets, elec-

tronic equipment features a relatively fast rate of

renewal and short service life. Thus, it is imperative

for software enterprises to upgrade electronic

equipment in order to ensure normal production and

operation, increasing the costs of software enter-

prises to a certain extent.

3.2 Characteristics of Cost Accounting

in Software Enterprises

3.2.1 Simplicity in Accounting

At present, most software enterprises work around

specific software projects. With relevant project

teams developing software projects and functional

departments covering administration and manpower,

the project's operation process is traceable. Moreo-

ver, software products are virtual things with almost

no inventory costs. The relatively fewer cost types

also make accounting simple compared to manufac-

turing enterprises.

3.2.2 Simplex Standard for Indirect Cost

Allocation

The indirect cost allocation standard for software

products in software enterprises proves to be simple

as dominated by the proportional method of labor

hours. Such a simple method is prone to deviate

software products from the true costs, which is not

conducive to the reasonable pricing of software

products and accurate decision-making of enterpris-

es, thereby affecting the long-term development of

enterprises.

3.2.3 Inadequacy in Inventory Costs

Software products of software enterprises are Inter-

net service products existing in the form of service

network users. Given its virtual nature, software

enterprises have almost no physical inventory.

4 ANALYSIS OF THE NECESSITY

AND FEASIBILITY OF

ACTIVITY-BASED COSTING

FOR SOFTWARE

ENTERPRISES

4.1 Necessity Analysis

4.1.1 Ability to Correctly Account for

Indirect Costs

Indirect costs constitute an important part of the

organization and production of software enterprises.

Compared with direct costs, indirect costs are more

difficult to allocate. The traditional costing methods

currently used by software enterprises have led to

the distortion of cost information to a large extent.

And the introduction of activity-based costing can

make up for the defects of the traditional methods by

taking activities as the allocation objects, establish-

ing activity centers with the same attributes, and

using different methods to allocate indirect costs

according to different cost drivers, which can im-

prove the costing accuracy and provide more valua-

ble information for decision- making (Lu, 2017).

4.1.2 Improvement in Capital Utilization

Software enterprises, highly dependent on technol-

ogy, require a large amount of capital for research

and design. In addition, given the low return of

funds and the different project life cycles, only when

software products are accepted that corresponding

revenue can be generated, highlighting the im-

portance of fund adequacy. Therefore, it is necessary

for software enterprises to make reasonable planning

for the relevant production process, account based

on the activity completion at each stage, improve the

fund utilization, and ensure the effective withdrawal

from circulation so as to maintain the normal opera-

tion of enterprises (Kuang, Wang, 2020).

Design of Activity-Based Cost Accounting System for Software Enterprises Against the Background of Big Data Analysis

567

4.2 Feasibility Analysis

4.2.1 Suitability to the Application

Conditions of Activity-based Costing

The main business of software enterprises is to de-

velop customized software products according to

customer needs. The diversity of software products

and the periodicity of R&D are in line with the ac-

tivity-based cost accounting system. Therefore, it is

feasible to apply activity-based costing to software

enterprises, which can help them operate and devel-

op better and enhance their competitiveness.

4.2.2 Ability to Process Data through Big

Data Technology

While activity-based costing proves to be compli-

cated in the calculation and requires the collection of

information from various links, software enterprises

boast advanced data processing ability and data

backup conditions, under which big data technology

can be used to connect different isolated islands of

information and collect various data samples to en-

rich the content in database and guarantee data from

different perspectives, thus providing a sufficient

database for the application of activity-based costing

(Zhao, Wu, 2017).

4.2.3 Advanced Management Concepts

Generally large in scale, software enterprises tend to

locate themselves in developed areas where ad-

vanced resources and management concepts at home

and abroad can be obtained in a timely manner.

During the implementation process, enterprises can

quickly accept the most advanced research theories

and apply the latest enterprise management concepts

to help software enterprises successfully implement

activity-based costing and ensure its implementation

effect.

5 DESIGN OF ACTIVITY-BASED

COST ACCOUNTING SYSTEM

FOR SOFTWARE

ENTERPRISES

Against the background of big data analysis and

according to the basic principle of activity-based

costing as well as the characteristics and cost com-

position of software enterprises, the activity-based

cost accounting system for software enterprises can

be designed as follows.

5.1 The Confirmation of Project

Activities

The project development workflow of a software

enterprise generally necessitates project establish-

ment, project budget, software development, soft-

ware testing, software operation and maintenance,

online promotion, etc., based on which the whole

process of software enterprises can be divided into

activities:

(1) Project establishment, including market research,

product positioning, product feasibility analysis,

etc.

(2) Project budget, including accounting, budgeting,

budget report, etc.

(3) Software development, including development

plan, DEMO production, software programming,

UI design and development, sample demonstra-

tion, etc.

(4) Software testing, including system testing, inter-

nal testing, and external testing.

(5) Software operation and maintenance, including

the operation and maintenance of software pro-

jects.

(6) Online promotion, including the development of

online plans, software promotion, and online

software.

5.2 The Confirmation of Activity

Centers

Activity centers should be established based on

Table 1: Summary Table for Activity Centers [Ower-draw].

Activit

Cente

Related Activities

Project Center

Development Center

Test Center

Operation and Maintenance

Center

Market research, product positioning, feasibility analysis, etc.

Development plan, DEMO production, software programming,

UI design and development, sample demonstration

System testing, internal testing, external testing

Software maintenance, software promotion

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568

activities sharing the same attributes. And four ac-

tivity centers can be established given the above six

activity attributes, as shown in Table 1.

5.3 The Determination of Resource

Costs

The following resource cost items are determined

according to the resources consumed by software

enterprises.

(1) Labor cost. In software enterprises, labor

costs account for a large proportion of the costs of

software products. As several links ranging from

software design, research, and development to

maintenance highly rely on the ability and experi-

ence of the relevant personnel, the intellectual out-

put of employees dominates the software costs.

(2) Depreciation costs of buildings. The build-

ings where software enterprises locate are mainly

office buildings, which are equivalent to the "pro-

duction plant" of software products. Therefore, the

depreciation costs of office buildings should be ap-

portioned according to the degree of operation of

each software project and then be included in rele-

vant business costs, generally apportioned based on

the area occupied by functional departments.

(3) Depreciation costs of office equipment. The

major office equipment of software enterprises is

computers. Computer depreciation costs are calcu-

lated given the length of use because the computer

works only when employees work, making it rea-

sonable to allocate the depreciation costs of com-

puters and other equipment based on labor hours.

(4) Other expenses include travel expenses, in-

formation service fees, water charges, electricity,

property management fees, network service fee, and

other office expenses. Among them, travel expenses

are allocated by travel duration and information

service fees by the number of services. Electricity is

related to electricity consumption, which mainly

comes from the daily operation of computer equip-

ment and lighting. But as computer equipment con-

sumes more electricity, the electricity can be allo-

cated according to the working hours of the ma-

chines; since software projects mainly rely on online

networks with computer equipment involved, the

network service fees can be allocated according to

the working time of computer and other equipment;

water, property, and office expenses are all allocated

given the occupied area of the building.

5.4 The Choice of Resource Driver

In light of the costing conditions and the determina-

tion of different resource costs of software enter-

prises, the selected resource drivers determined by

big data analysis are shown in Table 2.

5.5 The Choice of Activity Driver

In light of the determined activity centers, the activ-

ity drivers are selected as follows: labor hours (hour)

of the initial planning of software projects for the

project center; labor hours (hour) consumed by pro-

gram and UI in software development for the de-

velopment center; testing time (hour) of system

testing, internal testing, and external testing for the

test center; and labor hours (hour) of software pro-

motion and maintenance for the operation and

maintenance center.

Table 2: Table for Resource Drivers [Ower-draw].

Activity Center Resource Type Resource Driver

1 Labor Cost Labor Hour (Hour)

2 Depreciation of Buildings Occupied Area (Square Meter)

Depreciation of Computer Equipment

Travel Expense

Information Service Fee

Electricity

Network Service Fee

Water Charge

Property Management Fee

Office Allowance

Service Duration (Hour)

Travel Duration (Hour)

Number of Services (Times)

Service Duration (Hour)

Occupied Area (Square Meter)

Design of Activity-Based Cost Accounting System for Software Enterprises Against the Background of Big Data Analysis

569

5.6 The Confirmation of Costing

Objectives and Costing Period

5.6.1 Costing Objectives

The product costs of software enterprises can be

mainly divided into the costs before and after the

project establishment. Without project establishment

in the development of software products, there will

be great uncertainty and no specific object for cost

accounting, which is then uniformly grouped into

the R&D cost. After the software products are estab-

lished, the analysis of production costs will be car-

ried out according to the product batch dominated

by the production of a single piece and a small

batch. In this way, the object of costing is the prod-

uct batch.

5.6.2 Costing Period

The production of software enterprises, given the

development size, can be concluded as small pro-

jects and large projects. While for small projects

with production cycles not too long, the costs in-

curred can be carried forward in the month. For

large projects with inter-year production cycles, the

costs should be calculated according to the percent-

age of completion.

5.7 The Arrangement of Costing

Accounts

5.7.1 The Arrangement of General Accounts

In order to meet the cost accounting needs of soft-

ware enterprises, "technology development cost,"

"technical service cost," and several "activity cost"

general accounts are set. The "technology develop-

ment cost" account is used to collect the costs of

technology development projects, the "technology

service cost" account to collect the costs of technol-

ogy service projects, and the "activity cost" account

to collect the costs incurred for the activity.

5.7.2 The Arrangement of Subsidiary

Accounts

The subsidiary accounts of software enterprises are

determined by the general accounts, and the specific

settings are as follows.

The arrangement of "technology development

cost" and "technology service cost" subsidiary ac-

counts: to set up secondary subsidiary accounts ac-

cording to each division, establish columns accord-

ing to cost items, and generally set up tertiary sub-

sidiary accounts given R&D projects, the specific

items of which include labor cost, depreciation fee,

travel expense, information service cost, water

charge, electricity, property management fee, net-

work service fee and other costs.

The arrangement of "activity cost" subsidiary

accounts: to set up secondary subsidiary accounts

according to each division under the general account

of "activity cost," establish columns according to

cost items, and generally set up tertiary subsidiary

accounts given each activity, the specific items of

which include labor cost, depreciation fee, travel

expense, information service cost, water charge,

electricity, property management fee, network ser-

vice fee and other costs.

6 CONCLUSION

In the era of big data, it remains an urgent problem

for software enterprises to scientifically conduct cost

accounting, improve cost control and make accurate

decisions. However, most software enterprises cur-

rently suffer from problems such as simple account-

ing, too simplex standards for indirect cost alloca-

tion, and inaccurate cost accounting. Therefore, it is

especially important to design a scientific and rea-

sonable cost accounting system for software enter-

prises against the background of big data analysis.

This paper applies the accounting principle of activ-

ity-based costing to design a set of activity-based

cost accounting systems for software enterprises in

terms of identifying activities and activity centers,

confirming resource costs, selecting resource drivers

and activity drivers, determining costing objects and

costing periods, and setting accounts, which aims to

improve the costing accuracy, upgrade the level of

cost management, and boost the development of

software enterprises.

ACKNOWLEDGMENT

This paper belongs to one of the periodical results of

the research project Research on the Design of Ac-

tivity-based Costing Accounting System for Software

Industry (NGY2018-171), funded by Ningxia High-

er Education Scientific and Technological Research.

ICPDI 2022 - International Conference on Public Management, Digital Economy and Internet Technology

570

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