Integrating Activity-Based Costing (ABC) for the Effective Evaluation of Financial Performance

Integrating Activity-Based Costing (ABC) for the Effective Evaluation of Financial Performance

T. Harsha1, Dr. R. Hemavathy2

 II Year MBA (IT)1, Assistant Professor2,

Department of Business Administration,

Avinashilingam Institute for Home Science and Higher Education for Women, Coimbatore, Tamil Nadu - 641043

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Abstract - Activity-Based Costing (ABC) has emerged as a vital tool for accurately assigning costs to products, services, and processes, thereby enhancing financial performance evaluation. Traditional cost accounting methods often lead to cost distortions due to arbitrary overhead allocation. In contrast, ABC allocates costs based on activities and resource consumption, offering better cost control and decision-making capabilities. This study explores how ABC can improve financial performance assessment by providing precise cost information, optimizing resource utilization, and enhancing profitability analysis. The findings demonstrate that firms adopting ABC achieve greater cost efficiency, improved financial reporting accuracy, and enhanced strategic decision-making.

Keywords: Activity-Based Costing, Financial Performance, Cost Allocation, Profitability, Decision-Making