Activity-Based Costing: Helping Small and Medium-Sized Firms Achieve a Competitive Edge in the Global Marketplace

Abstract

Since the 1970s, activity-based costing (ABC) has enabled companies to identify the true costs of processes and products and to make sound decisions related to the profitability and expense of the products they produce, as well as the effectiveness of their manufacturing and business processes. This paper explores the advantages of activity-based costing vs. traditional costing systems and presents arguments for the potential benefits to the world’s millions of small to medium business (SMEs) from implementing ABC. Issues related to the implementation of ABC are discussed. A framework for ABC implementations in SMEs is presented that shows the variables (characteristics of SME and implementation challenges) that can impact the ABC implementation process, and/or ultimately, implementation outcomes.