Charotar University of Science & Technology

Indukaka Ipcowala Institute of Management

Activity Based Costing Adoption and Challenges In SMEs

23MBA009 Devansh Bhatt

MB205- Costing and Control Systems
Introduction to ABC

 Imagine a bakery that makes cakes and cookies. They know how much flour
and sugar go into each (direct costs), but what about the electricity for the
ovens (indirect cost)?
 Activity-based costing (ABC) is a way to figure out the true cost of those
cookies and cakes. It breaks down all the things the bakery does (activities,
like designing, mixing, baking) and assigns a cost to each. Then, they see how
much of each activity goes into each treat (like more mixing for cake batter).
This gives a more accurate picture of what each item really costs to make.
 In simpler terms, ABC helps businesses understand how much each product or
service costs by considering all the activities involved, not just the obvious
direct costs.
 Variety of Products/Services
and Integration problems with
ABC
Hypothesis:
H0: There is no significant association between
variety of products and integration problems
with ABC.
H1: There is a significant association between
variety of products and integration problems
with ABC.

 Interpretation:
Here, the p-value is 0.644 which is greater than 0.05 (we have taken
95%confidence level) therefore we fail to reject the null hypothesis and reject the
alternate hypothesis. Which proves that there is no significant association between
the given variables.
 Investigating the relationship
between costing of
products/services and
analyzing profit margin
Hypothesis:
H0: There is no relationship between
importance of proper allocation of overheads
for ‘better costing of products/ services’ and
‘analyzing profit margin’.
H1: There is a relationship between importance
of proper allocation of overheads for ‘better
costing of products/ services’ and ‘analyzing
profit margin’.

 Interpretation:
There is High positive Correlation (association) between importance of proper allocation of
overheads for ‘better costing of products/ services’ and ‘analyzing profit margin’.(r=
0.727). Here, the p-value is 0.000 which is less than 0.01 (we have taken 99%confidence
level) therefore we reject the null hypothesis and accept the alternate hypothesis. Which
proves that there is a relation between the given variables.(r= 0.727, p-value < 0.01)
Thank
You