APPLICATION AND BENEFITS OF ACTIVITY BASED COSTING OVER TRADITIONAL COSTING APPROACH: A CASE STUDY ON AN EXPORT ORIENTED CERAMIC (TILES) MANUFACTURING INDUSTRY

Activity Based Costing (ABC) system is a technique that is designed to accurately reflect the costs (indirect) to which it incurred. Unlike traditional method, instead of using the single predeterm ined overhead rate to absorb the overhead cost to product, ABC system uses actual incurred cost to determine the product cost. Although its main advantage is its ability to provide more realistic product cost information, use of ABC can help managers to ma ke better decisions about product design, pricing, marketing, and product - mix and encourage for continual improvement. Based upon this ABC fundamental principle, present work develops a precise and detailed costing model to calculate the indirect product c osts of an export oriented tiles manufacturing industry. It gives a clear view of cost assignment through resource to activity; activity to cost objects for similar type of industry. A comparative analysis of product costs using ABC and traditional costing system is carried out to show significance of the model as well as ABC approach. This paper also suggests the way how the decision makers can get the benefit by using this model . The paper reports on the application of ABC method for tiles manufacturing i ndustry and concludes that it is an effective method in product costing as well as in decision making.