A commentary on the applications of activity-based costing

Abstract Activity-based costing (ABC) has, within the last decade, generated a voluminous literature which has paralleled its increase in popularity with practitioners. This paper reviews ABC's potential by examining applications of it which extend throughout the core areas of management accounting. Consideration is given not only to how it has positively contributed to practice in these areas but also to its rationale and limitations to particular applications. Assessment is also made of how it interacts with longer established management accounting issues such as the variable versus fixed costing debate for income measurement and decision-making, the use of contribution margin analysis, organizational slack in the budgetary control process and conventional variance analysis. Some conclusions are drawn on its value to practitioners and researchers.