Advantages and Suitability of Activity-Based Costing: A Study from Engineering Industry

Lenka Hudáková Stašová

Central European Business Review, 2023, vol. 2023, issue 4, 1-31

Abstract: The objective of the paper is to assess the advantages and disadvantages of costing methods for companies in the engineering sector. We compare traditional costing methods (absorption costing and marginal costing) with the activity-based costing (ABC) method. The analysis is carried out in Slovakia and Czechia. We examine the reasons for the transition to the ABC method and also the reasons for continuing to use the traditional marginal costing method. For statistical analysis, we use the chi-squared test, the chi-squared data distribution test, the Wilcoxon paired test and the Mann-Whitney U-test for two independent selections. We use each of these tests for the individual hypotheses and research questions in accordance with the nature of the specific data appearing under the given hypothesis or research question. Slovak companies are statistically significantly more likely to perceive doubts about the suitability of the ABC method as its disadvantage compared to Czech ones. In the end, proposals for business practice are presented. Implications for Central European audience: Managers of engineering companies are aware of the role and importance of costing, but they usually do not pay enough attention to the actual compilation and monitoring of costing. We analyse a selected sample of Slovak and Czech companies, but our conclusions and proposals can be generalized and applied in other Central European countries, which have similar political and economic environments, culture and history.

Keywords: traditional costing method; Activity Based Costing (ABC); mechanical engineering industry (search for similar items in EconPapers)
JEL-codes: M21 M41 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.18267/j.cebr.330

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