Abstract: Activity-Based Costing (ABC) which has become an important aspect of manufacturing/service organizations can be defined as a methodology that measures the cost and performance of activities, resources and cost objects. It can be considered as an alternative paradigm to traditional cost-based accounting systems. The objective of this paper is to illustrate an application of ABC method and to compare the results of ABC with traditional costing methods. The results of the application highlight the weak points of traditional costing methods and an S-Curve obtained is used to identify the undercosted and overcosted products of the firm.
Abstract: Activity-Based Costing (ABC) represents an
alternative paradigm to traditional cost accounting system and
it often provides more accurate cost information for decision
making such as product pricing, product mix, and make-orbuy
decisions. ABC models the causal relationships between
products and the resources used in their production and traces
the cost of products according to the activities through the use
of appropriate cost drivers. In this paper, the implementation
of the ABC in a manufacturing system is analyzed and a
comparison with the traditional cost based system in terms of
the effects on the product costs are carried out to highlight the
difference between two costing methodologies. By using this
methodology, a valuable insight into the factors that cause the
cost is provided, helping to better manage the activities of the
company.