Institutionalization of Activity Based Costing in a Sri Lankan Manufacturing Firm: A Case Study

S. Cardes and Tharusha N. Gooneratne


The aim of this paper is to identify the reasons for the implementation and subsequent institutionalization of activity based costing (ABC) in a manufacturing subsidiary of a large local conglomerate, Sigma and the uses of ABC information by various managers. The paper adopts the qualitative case study approach and leans on the theoretical lens of old institutional economics (OIE). Our findings reveal that the implementation of ABC in Sigma was driven by the parent company’s decision to implement SAP (for the group) as the enterprise resource planning (ERP) system of which ABC was embedded as the accounting module. ABC has been in use for over ten years in Sigma, and it has become an institutionalized practice. The institutionalization of ABC in Sigma characterizes both ceremonial as well as instrumental institutionalization, and show that ceremonial institutionalization can be made effective if it can be successfully embedded to the operations of the firm, through instrumental institutionalization. This is a useful theoretical contribution of this research. This study is also an important addition to existing management accounting literature in the area of ABC, and its findings offer valuable insights to practicing managers on the implementation and use of ABC.

Keywords: Activity Based Costing, Institutionalization, Ceremonial Institutionalization, Instrumental Institutionalization, Case Study