The technique of ABC involves identification of production path and activities that go into making a product or service, selection of suitable drivers, creation of cost pools, calculating the activity cost driver rate and allocation of the cost based on the activity cost driver rate and activity consumed by cost object. The basic idea of ABC is that costs are grouped according to what drives them or causes them to be incurred. ABC is the method of cost attribution to cost units on the basis of benefits received from indirect activities. It puts emphasis on performance of activities and demands that these activities make on the resources of the orgainsation.
The idea of Activity Based Costing drifted in 1980s, since then numbers of efforts are made to refine the same. Though plentitude of research work has been carried out in this direction for its easy implementation as well as practice yet, it still yearns for practical acceptance. In the Indian context very few studies were carried out on Activity Based Costing. This endeavor emphasizes on link between objectives of keeping cost accounting system and its effective use to provide information for various business applications.
Attempt has been made to establish that the application of ABC is a tool of cost management with the help of Quantitative analysis with focus on collecting and analysing information received from the respondents. In order to get views on practices, awareness and practicability of objective and effectiveness of activity based costing system as a tool of cost management a Structured Instrument is administrated. The non-probability sampling approach was put to use based on convenience sampling method for drawing of sampling units. Views of professionals like CA, CMA, CS etc., and representatives from various industries, owners, trustee and academicians are included in the research.
The results of the empirical analysis provide information about the status of Activity Based Costing in India. It also highlights on the number of benefits of application of Activity Based Costing in effective cost ascertainment and cost management. In this book the author substantiates ABC as simple and swift in implementation, inexpensive in operation, can be effortlessly updated as per the needs and complexities of organisation. Activity-based costing (ABC), as a management accounting tool, offers a remedy for accurate costing as well as improvement in efficiency, effectiveness, and quality of the cost information in organisations.