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Exploring Theoretical Foundations of Activity-Based Costing

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  • Muhammad Saleem Ullah Khan

    (Department of Business Management Studies Gulf College, Muscat, Sultanate of Oman)

Abstract

This paper aims to explore the theoretical foundations of Activity-Based Costing (ABC) by examining its underlying assumptions, key concepts, methodology, applications and future directions. ABC emerged as an innovative approach to address limitations in traditional costing methods by assigning overhead costs based on activities and cost drivers. The paper at first discusses ABC’s assumption that products consume activities, and activities consume resources. Key concepts of activities, cost drivers and cost pools are then defined. The methodology of how ABC traces costs from activities to cost objects is outlined. Applications across industries are reviewed and benefits of more accurate product costing is discussed. Challenges in implementation like extensive data requirements are acknowledged. Emerging trends integrating ABC with technologies like real-time costing, analytics and artificial intelligence are also examined. The paper argues that understanding ABC’s theoretical foundations is essential for effective organizational adoption and optimization of its strategic decision-support capabilities. Continuous refinement will strengthen ABC’s relevance in the evolving business landscape.

Suggested Citation

  • Muhammad Saleem Ullah Khan, 2024. "Exploring Theoretical Foundations of Activity-Based Costing," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(3s), pages 2953-2965, March.
    • Handle: RePEc:bcp:journl:v:8:y:2024:i:3s:p:2953-2965
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    References listed on IDEAS

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    1. Gold, Heather T. & McDermott, Cara & Hoomans, Ties & Wagner, Todd H., 2022. "Cost data in implementation science: categories and approaches to costing," LSE Research Online Documents on Economics 113704, London School of Economics and Political Science, LSE Library.
    2. Pedro Borges & Maria do Céu Alves & Rui Silva, 2024. "The Activity-Based Costing System Applied in Higher Education Institutions: A Systematic Review and Mapping of the Literature," Businesses, MDPI, vol. 4(1), pages 1-21, January.
    3. Wen-Hsien Tsai & Shuo-Chieh Chang & Yuchun Teng, 2024. "Equilibrium between Environmental and Economic Objectives: An Activity-Based Costing Approach Application for Carbon Emissions Management in the Aluminum Alloy Wheel Industry," Energies, MDPI, vol. 17(6), pages 1-37, March.
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