Beyond Traditional Costing: The Rise,Adoption, and Impact of Activity-Based Costing in Modern Manufacturing Industries

Abstract

The adoption of Activity-Based Costing (ABC) has transformed cost management in modern manufacturing industries by improving cost allocation accuracy and enhancing financial decision-making. This study explores the rise, adoption, and impact of ABC from 2020 to 2024, assessing its effectiveness in optimising resource utilisation and reducing financial inefficiencies. Using secondary data analysis from industry reports, financial statements, and academic literature, the study applies statistical techniques, including correlation analysis (r = 0.87), ANOVA (F = 8.92, p = 0.001), and regression modelling (R² = 0.79), to evaluate ABC’s influence on cost reduction, operational efficiency, and financial performance. The findings reveal a strong correlation between ABC adoption and financial improvements, with a 10% increase in ABC implementation leading to an estimated 3.22% rise in financial performance. The chemical and automotive industries demonstrated the highest cost savings and efficiency improvements, validating ABC’s role in modern cost structures. Despite its benefits, challenges such as high implementation costs, data collection complexity, and resistance to change hinder widespread adoption. The study recommends integrating AI-driven cost management tools, phased implementation strategies, and policy incentives to facilitate ABC adoption. Future research should explore the integration of ABC with digital transformation trends such as blockchain and IoT for enhanced cost tracking and financial reporting.