Activity Based Costing: Strategic Implications for Indian Companies
Abstract
In the present scenario of cut-throat competition, both on price and quality, increasing consumer demands and product differentiation, the traditional costing system has become obsolete and even have led to strategic failures in many organisations when various costs especially the overheads, are incorrectly allocated to product lines. In this paper, we trace the historical development of concepts and techniques of cost accounting that have shifted the attention of management practitioners toward alternative methods of costs allocation. Exploresing the past, current, and future trends of cost accounting in Indian companies, this paper highlights the distinctive features of Activity-based costing vis-ii-vis conventional costing methods and the Activity-based costing implementation process. Itshows that Activity-based costing is a definite improvement over the traditional methods on the premise that the costs are collected on the basis of activities rather than products and it can effectively contribute to the top managerial decision-making process. The paper examines feasibility ofhybrid methods of costing and its use by Indian companies. Finally, it establishes that in spite of superiority of Activity based costing over other costing methods, awareness about it and its implementation is still low in India as compared to the developed countries.
