On the Connections Between Activity Based Costing Models and Optimization Models for Decision Support (Classic Reprint) - Hardcover

Shapiro, Jeremy F.

9780666606549: On the Connections Between Activity Based Costing Models and Optimization Models for Decision Support (Classic Reprint)

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ISBN 10: 0666606544 ISBN 13: 9780666606549

Publisher: Forgotten Books, 2019

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Excerpt from On the Connections Between Activity Based Costing Models and Optimization Models for Decision Support

In manufacturing firms, traditional accounting methods determine unit product costs from allocations of functional categories that have little to do with the firms' value adding activities. Activity-based costing (abc) methods seek instead to identify cost drivers and relationships that more accurately describe how costs of manufacturing activities are incurred (kaplan Cooper Some costs may vary directly with the volume of a cost driver, whereas others may not vary with volume, or may vary in a non-linear or non-smooth manner.

For example, direct labor costs may be accurately described as a linear function of direct labor hours as the cost driver. By contrast, indirect plant overhead costs may be accurately described as the sum of a lumpy (fixed) cost term and a variable cost term based on the number of employees working at the plant who are not directly involved in production.

Although we will focus on manufacturing applications in this paper, ABC methods are also pertinent to service organizations and service functions within manufacturing firms (see Chapter 7 in Cooper and Kaplan Banker and Johnston [1993] report on an extensive analysis of cost drivers and cost relationships for U. S. Airline companies. Lewis [1991] discusses the development of ABC models to describe marketing costs in manufacturing firms.

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