Therefore, for the avoidance of biased reporting of cost, the overheads being allocated to objects of cost should not be set on the basis of a common measure related to volume like hour of direct labour but over the sets of activities generating these types of overheads. An allocation of overhead on the basis of activity centres tend to be avoiding a mutual result of traditional system of output based costing specifically within products of cost low volume (Platts 2005). It had further been identified that overheads on the basis of activity centres tend to be facilitating the target over wasteful, unnecessary, usage of resource, and the expensive effects over- complicated way to run a process of business. This particular technique of activity based costing is a system of focused attention on the expense of several required activities for the production of service or product.
A voluminous literature in corporate finance and macroeconomics has studied in depth the impact of financial constraints on firm value, capital investment, and business cycles. In pricing of asset, a significant doubt lies in how constraints of finance end up impacting expected returns and risk(Zingales 2000).Changes in conditions of finance end up impacting the progress of one state in the process of financial distress to the other. If the conditions of finance end up becoming aggravated, bankruptcy might be faced by the company. On the contrary, if there is an improvement in performance of the organization, there is a significant scope of overcoming the difficulties of finance and recovering these in the absence of any defaulting (Zingales 1997).
In order to analyse the context and data of this research, the perspective of capital market theory can be considered for investigating the risk of distress, its key attributes and nature. This particular theoretical perspective will be considered as the review of literature related to financial distress and distressed organization is incomplete and extremely fragmented. The theory of capital is built on the portfolio model of Markowitz with the underlying assumption that each and every investor is an efficient investment (Zingales 1997).In an intuitive sense, the risk of organizations end up increasing with the level of their inflexibility while capital investment is adjusted for mitigating the effect of aggregate shocks over the streams of dividend.