21, February 2026

Traditional Costing vs. Activity-Based Costing: A Comparative Review of Literature

VOLUME-10; ISSUE-2; FEB-2026

Author(s): Dr Raghuveer R

Authors Affiliations:

Faculty, MBA, Yuvarajas College (Autonomous), University of Mysore, Mysore

DOIs:10.2017/IJRCS/202602004     |     Paper ID: IJRCS202602004


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Abstract:   Costing systems play a critical role in managerial decision-making, pricing, and performance evaluation in organizations. Traditional Costing (TC), which allocates overheads using volume-based measures such as direct labour or machine hours, has been widely adopted due to its simplicity and ease of implementation. However, its relevance has been increasingly questioned in modern business environments characterized by automation, product diversity, and rising indirect costs. In response to these limitations, Activity-Based Costing (ABC) emerged as an alternative approach that assigns costs based on activities and cost drivers, thereby improving cost accuracy and transparency. This study presents a comparative review of literature on Traditional Costing and Activity-Based Costing with the objective of synthesizing conceptual, empirical, and practical insights. The study is based on secondary data and reviews published research articles, textbooks, and scholarly studies in the field of management accounting. Content analysis is employed to examine key themes such as cost allocation accuracy, decision-making relevance, implementation challenges, and strategic applicability of both costing systems. The review reveals that Traditional Costing remains suitable for organizations with homogeneous products, stable processes, and relatively low overhead intensity. However, it often results in distorted cost information in complex operational settings. Activity-Based Costing, on the other hand, provides more accurate and detailed cost information, supports strategic decisions related to pricing and product mix, and enhances cost control, although its adoption is constrained by higher implementation costs and resistance. The study concludes that costing system choice should be guided by organizational context, cost structure, and managerial objectives for effectiveness.  
Traditional Costing; Activity-Based Costing; Cost Allocation; Management Accounting; Cost Management; Managerial Decision-Making.

Dr. R Raghuveer (2026); Traditional Costing vs. Activity-Based Costing: A Comparative Review of Literature, International Journal of Research Culture Society,    ISSN(O): 2456-6683,  Volume – 10,   Issue –  2,  Available on – https://ijrcs.org/

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