The Effect of Applying Activity Based Costing Technique on Financial Performance of Service Industry: A Case Study of Levare Consultants Pvt. Ltd.
Purpose: The purpose of this paper is to improve the financial performance of Levare Consultants Pvt. Ltd (LCPL) firm by measuring impact and importance of ABC-a way to measure changes in their productivity of LCPL. The objective of the paper is to demonstrate chances in financial performance when LCPL applies ABC approach.
Design/Methodology/Approach: Random sample of 50 members from LCPL were selected. The opinion of sample members has been collected personally through questionnaire and also direct interview. The questionnaires were made and given to the financial staff of LCPL. They were required to complete the questionnaires based on their understanding and perceptions of ABC related to financial performance. Secondary data were collected from the reference books, published journals, annual reports etc. The data, both primary and secondary have been tabulated in a suitable sheet prepared for the purpose. Analyzing and interpreting the collected data, conclusion has been drawn.
Findings: In the competitive market at present, benefits of cost are very important. ABC is a system providing cost information for these competitive strategies. LCPL is facing challenges and difficulties in business environment, thus benefits from ABC have become more important. The implementation of ABC in LCPL brings positive results due to positive perception of staffs in the company. As can be seen, ABC has had a positive influence on improvement of financial performance at LCPL. Thus by applying ABC, managers of LCPL would be given more accurate information and able to take the right actions that would improve the profitability and the financial performance of a company.
Research Limitations/Implications: The study is totally based on the sample opinion and published data on ABC. The general answers and the analysis are based on the majority of the information collected, but the knowledge of the participants about ABC may differ. This study is a case study of LPCL therefore outcomes of the study may not be generalised.
Higher earnings are proof that they always find the best methods to apply in business operation. Thus, it can be said that ABC method has big effect on financial performance of manufacturing firm. All three hypotheses are accepted, these indicate the positive impact of ABC on financial performance.
Originality/Value: This research could assist management of LCPL as it applies a multiple stage approach to get closer to actual costs in the company, in order to emphasize the relationship among activities, as well as between activities and cost objects in a chain of stages.
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