Advancing from absorption costing to activity-based costing : an exploratory study

M.Comm.Every business owner wants his/her business to grow. With growth comes change and one of the major changes in a business is the cost of the product and/or service the specific business offers to its clients. A lot of managers and small, micro and medium business owners do not know and/or understand the basic principles of costing, the types of costing methods and how to implement and execute a chosen costing method. The first step is for the management of a business or business owner to choose a costing method or methodology applicable to the organisation’s unique situation. Choosing the best or most applicable costing method could therefore have a fundamental impact on goals and objectives, revenue and reflected profits – which, in turn, could attract investment and shareholders, but also increase stakeholder satisfaction. This study explores the various types of expenses found in any organisation and applicable costing methods. It specifically outlines and compares the traditional costing or absorption costing (AC) methodology with activity-based costing (ABC) methodology in a real South African company. This study shows that a small, micro and medium enterprise, will have a better understanding of costing but can also benefit, financially and otherwise, by moving from absorption costing and implementing activity-based costing. This study forms the basis of understanding costing and serves as a platform to enhance the applicable business and its costing