Implementation of Activity-Based Costing in e-Businesses

In the early 1980s, management accounting practices were being questioned since it was realized that traditional cost accounting practices were not appropriate for allocating indirect costs that were not associated with a specific product or customer. Activity-based costing (ABC) was developed to overcome problems that were leading to poor management decisions such as investing in unprofitable customers or products etc. Although manufacturing companies have firstly used activity-based costing, in fact ABC is a very appropriate cost control method for e-businesses whose almost all activities are associated with the indirect cost category. The fact that one of the reasons why many dot.com companies had gone through bankruptcy in the 2000s was not using an effective cost control system has rendered ABC more important for e- businesses. The aim of this paper is to implement ABC in an e-auction company, to determine unprofitable and promising customers accordingly. In the first part, theoretical information about ABC is presented and than implementation is explained step by step. In the last part results are evaluated and some recommendations are proposed.