Activity Based Costing and Profitability of IT Companies-A Case Study

Abstract

Modernization and expansion of business from one physical nature to another is highly influenced by cost ascertainment methods and the costing system is information system that requires a specific type of information such as direct labour hours and units produced. Cost information is necessary for decision making as managers rely upon the cost for effective operational and strategic decisions. Particularly, for IT companies it is very essential that the ascertainment and management of cost to combat with global competition, hence, Activity Based Costing (ABC) has become a tool in the hands of IT companies to surmount the problems with regard to cost management. The main objective of the paper is to throw the light on the ABC system in IT companies and impact of ABC on profitability vis-a-vis the traditional cost system