The exploratory factor analysis showed a one factor solution for all of the independent variables derived
from multiple questions apart from product diversity. Four questions were used to measure product
diversity. Two factors emerged from the factor analysis with loadings greater than 0.4 that explained 74%
of the variance. Two questions that were concerned with volume diversity loaded on to one factor and
the remaining two relating to support diversity loaded on to the other factor. These factors were therefore
respectively labeled volume diversity and support diversity. Cronbach’s alpha for the latter item (0.53)
is marginally below the minimum acceptable level of 0.60 suggested by Hair et al. (1998) but above the
minimum of 0.5 suggested by Nunnally (1978).14
Four different measures were used as a proxy for the dependent variable for determining the level
of cost system sophistication. First, two dichotomous variables were used to measure the level of cost
system sophistication. ABC adopters were categorized as sophisticated systems and non-ABC adopters
were categorized as non-sophisticated systems. A question, adapted from Krumwiede (1998), was used
to identify which of nine different stages towards ABC implementation best described the business unit’s
current situation and thus identify whether organizations were ABC adopters or non-adopters.15 The
second measure for the dependent variable focused on the number of cost pools (centres) used in the
first stage of the two-stage allocation process and the third measure used the number of different types
of second stage cost drivers. Respondents were requested to insert the number of cost centers/cost pools
that were used in the first stage of the two-stage allocation process to assign indirect costs to products or
services.
variables are shown in Table 1.13