Application of Activity-Based Costing in Cost Management of Nigerian Deposit Money Banks

This study examines the application of activity-based costing as a cost management tool in Nigerian deposit money banks. Traditional volume-based costing methods have long been criticized for their inability to accurately assign overhead costs in service-intensive industries like banking, where diverse product lines and customer segments consume resources at varying rates. Activity-based costing offers a more granular and accurate alternative by tracing costs to the specific activities that drive them. This study focuses on the practical implementation of ABC in three selected deposit money banks operating in Lagos, Abuja, and Kano, using a case study design supported by interviews with 65 cost and management accountants. The study maps activity cost pools, identifies cost drivers, and compares product profitability results under ABC versus traditional costing. Findings reveal that ABC produces significantly different product profitability profiles compared to traditional methods, with several product lines identified as loss-making under ABC that appeared profitable under conventional allocation. The most resource-intensive activities were identified as customer onboarding, loan processing, and regulatory compliance. The study concludes that ABC adoption in Nigerian banks has the potential to improve pricing accuracy and strategic resource allocation. However, implementation requires substantial process mapping investment and management commitment. It recommends that the Chartered Institute of Bankers of Nigeria incorporate ABC training into its professional development curriculum to accelerate adoption across the sector.

Keywords: activity-based costing, deposit money banks, cost management, overhead allocation, profitability.