Implementing Activity-Based Costing in the Service Industry

Abstract

        Activity-based costing is a modern accounting method that focuses on bringing costs together with administration in order to achieve efficiency and effectiveness in operations. It can be measured in terms of quantity and quality. The process of activity-based costing consists of three steps: 1) identification of activities; 2) identification of cost drivers; and 3) allocation of costs to activities. In addition, it can also identify which activities are value-added and which activities are non-value-added. In traditional costing this cannot be performed in detail as it can in activity-based costing. Activity-based costing first began to be used in the manufacturing industry, but it can be applied to the service industry with a focus on cost management rather than service cost. The service industry is important for national development. It also adds to the variety of value added products and services, contributing to greater competition to create more diverse services for customers. Therefore, it is necessary for businesses to calculate the correct operating costs to provide management information about various aspects of their services, which can contribute to a competitive advantage, such as reducing the service cost but providing the same quality or better.