Skip to main content
Article thumbnail
Location of Repository

A simulation analysis of interactions among errors in costing system design

By Eva Labro and Mario Vanhoucke

Abstract

Activity-based costing (ABC) as well as other cost accounting systems provide accurate costs only under stringent conditions. However, we know little about the nature, level, and bias of costing errors. This paper reports the results of a simulation study of a two-stage costing system that provides the following main insights: 1) partial improvement in the costing system usually increases the overall accuracy of reported product costs except in certain cases identified in this paper where errors have an offsetting effect, most notably when there is aggregation error on the activity cost pools and measurement error on the resource drivers; 2) the impact of Stage II costing errors on overall accuracy is stronger than that of Stage I errors, so any system refinements should focus on Stage II; and 3) the introduction of aggregation and measurement errors usually results in relatively more products being under- than overcosted, with high amounts of overcosting for a few "big-ticket" (large dollar size) products, and small amounts of undercosting for a larger number of less expensive (small dollar size) products

Topics: HF5601 Accounting
Publisher: American Accounting Association
Year: 2007
DOI identifier: 10.2308/accr.2007.82.4.939
OAI identifier: oai:eprints.lse.ac.uk:16660
Provided by: LSE Research Online
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • http://www.atypon-link.com/AAA... (external link)
  • http://eprints.lse.ac.uk/16660... (external link)
  • Suggested articles


    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.