How can companies implement activity-based costing in their operations to maximize profitability?

Common challenges in applying activity-based costing include: difficulty in identifying all activities and assigning costs to them, resistance from employees due to change in traditional costing methods, and the time and resources required to implement the system. These challenges can be overcome by: providing adequate training to employees, using software to automate the process, and ensuring top management support for the change.

Activity-based costing (ABC) aligns with digital transformation initiatives in cost management by providing a more accurate understanding of overhead costs. Digital transformation initiatives often involve the implementation of advanced technologies that can automate the process of cost allocation based on activities, making ABC more efficient and precise. This can lead to better decision-making, improved profitability, and a competitive advantage. Furthermore, digital transformation can enable real-time tracking and analysis of costs, enhancing the effectiveness of ABC.