Cost Distortion and Its Impact on Pricing Decisions: A Comparative Analysis of Traditional Costing and ABC Methods

Accurate cost information is vital for making strategic pricing decisions in today’s competitive manufacturing landscape. This study investigates the impact of cost distortion on pricing decisions by comparing Traditional Costing and Activity-Based Costing (ABC) methods. Using a quantitative research approach, data were collected from 102 finance professionals in Nigerian manufacturing firms. Descriptive statistics, correlation, and regression analyses were employed to evaluate the relationships among cost accuracy, cost distortion, and pricing effectiveness. The findings reveal that ABC significantly enhances cost accuracy and pricing reliability, while traditional costing systems are prone to cost distortion, leading to suboptimal pricing decisions. Regression analysis shows that 70.7% of pricing decision effectiveness is explained by cost accuracy and cost distortion. The study concludes that adopting ABC can improve pricing decisions and recommends wider adoption of ABC, especially in firms with complex operations. The research validates contingency and decision usefulness theories in the context of cost management and pricing strategies.