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1 – 10 of 883Prior work has focused on the impact of using alternative bases for allocating costs to products but there has been little work that evaluates the use of alternative allocation…
Abstract
Prior work has focused on the impact of using alternative bases for allocating costs to products but there has been little work that evaluates the use of alternative allocation bases for allocating costs to departments. In particular, if different departments of a multi‐national firm are located in settings with different reporting requirements, exchange rate risks, and costs of capital, then the choice of cost allocation base can be important. This paper examines the economic impact of alternative service department allocation bases in a decentralised setting. A non‐linear programming (NLP) approach is used to model the problem. A review of prior literature identifies a method, based on the NLP approach, for determining the economic impact of alternative allocation bases in a multi‐product setting. The method is adapted in this paper for the multi‐divisional context. The study finds that centralised production volume decision‐making is superior to decentralised decision‐making using either revenue or volume‐based cost allocation bases. Under certain conditions, revenue‐based allocation bases are also found to be superior to volume bases. Under the assumptions of the model no distinction can be made between the centralised solution and a profit‐based allocation regime. A practical implication of this study is that designers of cost allocation systems need to consider not only the direct income‐shifting effect of different cost allocation bases but also the indirect economic effect of consequential changes in the operating decisions of the firm.
Saeed Mirzamohammadi, Saeed Karimi and Mir Saman Pishvaee
The purpose of this paper is to develop a new systematic method for a multi-unit organization to cope with the cost allocation problem, which is an extension of the reciprocal…
Abstract
Purpose
The purpose of this paper is to develop a new systematic method for a multi-unit organization to cope with the cost allocation problem, which is an extension of the reciprocal method. As uncertainty is the inherent characteristic of business environments, assuming changes in engaged parameters is almost necessary. The outputs of the model determine the total value of each unit/business lines or product.
Design/methodology/approach
In the proposed method, contrary to existing models, business units are able to transfer their costs to other units, and also, not necessarily transfer the total costs of support units completely. The DEMATEL approach, which finds all relationships between different parts of a system, is also applied for computing effects of the units’ expense paid to each other. Moreover, a fuzzification approach is used to capture linguistic experts’ judgments about related data.
Findings
Being closer to the real-world problem in comparison to the previous approach, the proposed systematic approach encompasses the other cost allocation models.
Practical implications
Applying the proposed model for a system like a multi-unit organization, the total price of each unit/business line can be obtained. Moreover, this cost allocation process guides the related decision-makers to better manage the expenses that each unit pays the others.
Originality/value
In the existing studies, business units cannot pay expense support units. However, in the proposed method, the business units are able to pay expenses for other units, and also, not necessarily pay total expenses for support unit completely. Moreover, considering engaged parameters as fuzzy numbers makes the proposed model closer to real-world problems.
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Richard J Palmer and Henry H Davis
As manufacturers continue to increase their level of automation, the issue of how to allocate machinery costs to products becomes increasingly important to product profitability…
Abstract
As manufacturers continue to increase their level of automation, the issue of how to allocate machinery costs to products becomes increasingly important to product profitability. If machine costs are allocated to products on a basis that is incongruent with the realities of machine use, then income and product profitability will be distorted. Adding complexity to the dilemma of identifying an appropriate method of allocating machine costs to products is the changing nature of machinery itself. Depreciation concepts were formulated in days when a machine typically automated a single operation on a product. Today’s collections of computer numerically controlled machines can perform a wide variety of operations on products. Different products utilize different machine capabilities which, depending on the function used, put greater or less wear and tear on the equipment. This paper presents a mini-case that requires management accountants to consider alternative machine cost allocation methods. The implementation of an activity-based method allows managers to better match machine cost consumption to products. Better matching of machine costs to products enables better strategic decisions about pricing, mix, customer retention, capacity utilization, and equipment acquisition.
The literature on activity‐based costing (ABC) that deals with the allocation of indirect purchasing costs primarily draws on a transactional approach to purchasing. This presents…
Abstract
Purpose
The literature on activity‐based costing (ABC) that deals with the allocation of indirect purchasing costs primarily draws on a transactional approach to purchasing. This presents a problem, since a large share of purchasing takes place within relationships. The purpose of this paper is to point out complexities in applying ABC to indirect purchasing costs, when purchasing takes place within long‐term relationships. The interaction model is used as a framework.
Design/methodology/approach
A case study is conducted on a first‐tier supplier in the Swedish automotive industry to illustrate real‐life purchasing practices and to point out subsequent difficulties in applying ABC principles. This firm is selected because efforts have simultaneously been undertaken to employ supplier relationship management (SRM) and to implement costing techniques. About 23 interviews were conducted and approximately 31 hours of interview data were collected.
Findings
The case shows that many functions tend to be involved in exchange within long‐term relationships. This generates additional purchasing‐related costs not previously recognized in the costing literature. It also leads to difficulties in allocating these costs.
Originality/value
Complexities when implementing ABC are presented, concerning: allocation of costs relating to SRM; allocation of costs pertaining both to transactions and to relationships; less apparent cost drivers due to involvement of many functions in exchanges; and cost allocation over time.
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Sanjeet Singh and Surya Majumdar
The purpose of this paper is to develop data envelopment analysis (DEA) models and algorithms for efficiency improvement when the inputs and output weights are restricted and…
Abstract
Purpose
The purpose of this paper is to develop data envelopment analysis (DEA) models and algorithms for efficiency improvement when the inputs and output weights are restricted and there is fixed availability of inputs in the system.
Design/methodology/approach
Limitation on availability of inputs is represented in the form of constant sum of inputs (CSOI) constraint. The amount of excess input of an inefficient decision-making unit (DMU) is redistributed among other DMUs in such a way so that there is no reduction in their efficiency. DEA models have been developed to design the optimum strategy to reallocate the excess input.
Findings
The authors have developed the method for reallocating the excess input among DMUs while under CSOI constraint and parameter weight restrictions. It has been shown that in this work to improve the efficiency of an inefficient DMU one needs the cooperation of selected few DMUs. The working of the models and results have been shown through a case study on carbon dioxide emissions of 32 countries.
Research limitations/implications
The limitation of the study is that only one DMU can expect to benefit from the application of these methods at any given time.
Practical implications
Results of the paper are useful in situations when decision maker is exploring the possibility of transferring the excess resources from underperforming DMUs to the other DMUs to improve the performance.
Originality/value
This strategy of reallocation of excess input will be very useful in situations when decision maker is exploring the possibility of transferring the excess resources from underperforming DMUs to the other DMUs to improve the performance. Unlike the existing works on efficiency improvement under CSOI, this work seeks to address the issue of efficiency improvement when the input/output parameter weights are also restricted.
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Anne-Marie T. Lelkes and Thomas M. Krueger
Prior research has used computer-generated data to illustrate the benefits of the recently developed duration-based costing (DBC) and its affiliate modified duration-based costing…
Abstract
Purpose
Prior research has used computer-generated data to illustrate the benefits of the recently developed duration-based costing (DBC) and its affiliate modified duration-based costing (MDBC). The purpose of this paper is to use data from a Fortune 500 corporation to compare its traditional, or functional-based, cost allocation method with that of the recently developed DBC and MDBC models.
Design/methodology/approach
A Fortune 500 company provided one month of production data for a particular, key machine within its manufacturing process. The data were used to apply DBC and MDBC.
Findings
Variations arising from differences in the models’ cost allocation reveal the advantages of using time-based cost allocation over the traditional, mostly non-time-based allocation to estimate profit.
Research limitations/implications
By using actual data, this case study enhances prior theoretical research concerning the benefits of utilizing DBC and MDBC over the traditional costing method.
Practical implications
This case study is of benefit to practitioners who use traditional costing since it will encourage them to explore DBC and/or MDBC that tend to be more accurate in situations where the old adage of “time is money” applies. Implementing DBC and MDBC was not difficult to do for the Fortune 500 company as all of the components to run the models were readily available.
Originality/value
This is the first study to utilize actual company data to illustrate DBC and MDBC, and thus, adding to the literature concerning DBC and MDBC.
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This chapter applies the Consortium for Advanced Management, International (CAM-I) Activity-Based Cost Management (ABC/M) tool to paratransit. The intent is to enable agencies…
Abstract
Purpose
This chapter applies the Consortium for Advanced Management, International (CAM-I) Activity-Based Cost Management (ABC/M) tool to paratransit. The intent is to enable agencies sponsoring rides to save money through sharing rides and vehicle-time.
Design/methodology/approach
Several paratransit cost-allocation models from Transit Cooperative Research Program (TCRP) and other sources are reviewed and one is adapted to the ABC/M methodology, based upon the author’s previous work proportionately allocating ride time among sponsoring agencies at a consolidated human service transportation agency and the price sheets used in contracted operations to minimize financial risk.
Findings
Through application of the principles of ABC/M, paratransit providers can properly allocate costs, determine the costs of providing proposed new services, plan for future vehicle acquisitions, and motivate their customers to tailor their transportation needs in a manner that will save them money and boost efficiency.
Research limitations/implications
University-based transportation studies programs may be motivated to apply these strategies to urban and rural paratransit providers that serve several customer agencies.
Practical implications
If agencies sponsoring paratransit rides understand that funds can purchase more rides during off-peak hours or if rides are shared with clients of other agencies, then paratransit resources can be used more efficiently and to the benefit of more individuals.
Social implications
By enabling the provision of more rides, a greater number of riders will be enabled to reach necessary services and participate in community life.
Originality/value
This is the first application of the ABC/M methodology to paratransit (and transit) and possibly to social services.
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John Rigby, Glen Kobussen, Suresh Kalagnanam and Robert Cannon
The purpose of this study is to examine the design, development and implementation of responsibility centre management at a mid-sized Canadian university, within the context of…
Abstract
Purpose
The purpose of this study is to examine the design, development and implementation of responsibility centre management at a mid-sized Canadian university, within the context of decentralized decision-making. More specifically our study focused on the design, development and implementation of a revenue and cost allocation process known as transparent activity–based budgeting system (TABBS).
Design/methodology/approach
The authors conducted this study using a qualitative case study methodology, rooted in grounded theory, as the primary approach to collect and analyse data, and report the findings. Primary data were collected from ten participants using semi-structured interviews.
Findings
The main takeaways from our research are that (1) such systems take time to design, develop and implement, (2) consultation, communication and information sharing and model adjustment and refinement are important enabling mechanisms, (3) internal and external events posed significant challenges, (4) although such systems are often designed keeping in mind several intended outcomes, there exists the possibility of experiencing some unintended consequences and (5) the juxtaposition of the above has the potential to negatively or positively impact organizational performance.
Originality/value
The research demonstrates that the design, development and implementation of a complex resource allocation model is an important element of a responsibility-centred approach to planning and decision-making. It highlights the importance and contribution of enabling mechanisms as well as the challenges that large, complex organizations may confront when introducing change.
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This study examines the nature of the researchers’ perspectives used in analytical and empirical cost system research published in the 1990s in an attempt to better understand…
Abstract
This study examines the nature of the researchers’ perspectives used in analytical and empirical cost system research published in the 1990s in an attempt to better understand current cost system research. The conceptual framework used for the evaluation is based on the research perspectives that have influenced the selection of different approaches in cost system research in the last three decades and reflects assumptions made in the research models and useful empirical implications.
The taxonomy used in the paper deepens our understanding of current cost accounting research and is argued as relevant on the premise that researchers would certainly care about finding a “better” cost system. A “better” system is defined in this study as the system that would lead to changes in decisions resulting in payoffs that are greater than the costs of implementing the new system.