Abstract
The model utilized in our paper studies the impact of interacting aggregation and measurement errors in two-stage Activity-Based Costing systems (ABC systems). Based on a simulation study we provide the following first results: (1) The sequence of occurrence of the considered errors is crucial for having either decreasing or partially increasing overall accuracy of reported product costs. Thus, negative interaction effects may overcompensate first-order effects. (2) The type of the aggregation error has a substantial impact on the interaction effects with a measurement error and (3) some discussed interaction effects in the literature can be explained by technical assumptions and restrictions. We propose a solution for further simulation studies of ABC systems.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
For a more detailed description and discussion of cost allocation in ABC see e.g. [1], pp. 7–13.
- 2.
In line with Labro/Vanhoucke we focus on overhead costs and assume that direct costs are measured without errors (cf. [3], p. 941).
- 3.
In the following AE-ACP denotes an aggregation error at activity cost pools and ME-AD denotes a measurement error at activity drivers.
- 4.
For further details see [2].
- 5.
Cf. [3], p. 943 and the cited literature for using the euclidean distance as a measure of overall error in the cost system.
- 6.
When strictly rounding down, 0 cost pools are subject to measurement error and hence a measurement error up to 20Â % seems to have no impact at all. When strictly rounding up, measurement errors of 10 and 20Â % have the same impact.
- 7.
In our setting the highest aggregation error has to leave at least 10 cost pools, so a variation of the measurement error from 0.0 to 0.9 with steps of 0.1 strictly increases the number of cost pools subject to measurement errors.
References
Balakrishnan, R., Labro, E., Sivaramakrishnan, K.: Product costs as decision aids: an analysis of alternative approaches (part 1 + 2). Acc. Horiz. 26(1), 1–41 (2012)
Heidgen, J.-G., Lengsfeld, S., Rüdlin, A.: Aggregations- und Messfehler in ABC-Systemen - Eine simulationsgestützte Analyse. University of Freiburg, Workingpaper (2012)
Labro, E., Vanhoucke, M.: A simulation analysis of interactions among errors in costing systems. Account. Rev. 82(4), 939–962 (2007)
Labro, E., Vanhoucke, M.: Diversity in resource consumption patterns and robustness of costing systems to errors. Manage. Sci. 54(10), 1715–1730 (2008)
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2014 Springer International Publishing Switzerland
About this paper
Cite this paper
Heidgen, JG., Lengsfeld, S., Rüdlin, A. (2014). Modeling Aggregation and Measurement Errors in ABC Systems. In: Helber, S., et al. Operations Research Proceedings 2012. Operations Research Proceedings. Springer, Cham. https://doi.org/10.1007/978-3-319-00795-3_38
Download citation
DOI: https://doi.org/10.1007/978-3-319-00795-3_38
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-00794-6
Online ISBN: 978-3-319-00795-3
eBook Packages: Business and EconomicsBusiness and Management (R0)