EFFECT OF ACTIVITY BASED COSTING (ABC) ON THE PRODUCTIVITY OF MANUFACTURING COMPANY

The aim of this study was to evaluate the degree of influence of Activity-Based-Costing(ABC) on manufacturing productivity. Traditional cost accounting method, which allocates overhead costs on the basis of one driver, that is, overhead absorption base (e.g. direct labor hour, machine hour, etc.) is inaccurate and misleading as this method often allocates too much cost to a product, based on the overhead absorption base, and not enough to another. To address this problem, activities- based - cost accounting method was developed to provide a means of creating a more accurate representation of how activities performed in the creation of a product or service actually impact costs. The study made used of survey descriptive research design method where data were collected through questionnaire. The collected data were analyzed using the ordinary least square regression method. The results showed that ABC method is significantly and positively related to production process efficiency. Conclusively, rather than allocating overhead on the basis of one variable, such as direct labor, ABC effectively uses multiple cost drivers to present a more accurate foundation for overhead costs allocation. It was recommended that a clear understanding of ABC method and its effective implementation will help gain competitive advantages and achieve higher level of productivity performance of manufacturing companies.