Cost Drivers of Manufacturing Overhead: A Cross-Sectional Analysis of Automobile Component Manufacturing Plants

This paper tested whether volume and complexity-driven support activity drivers are significant in explaining variation of overhead. Data used include cost and activity data for the 74 automobile component manufactunng plants. Each of volume and support achwty variables showed sigmfnmt marginal contnbuhon to the explanahon of overhead vanation Thls result supports the assumphons of both tradihonal and ABC systems suggestmg that both volume and support achvlty dnvers are useful for cost allocation and cost management purposes Among the support activities, process balancing activihes, purchasing control activities, and change actiwhes showed significant posltive effects on manufacturing overhead The higher level of tests showed that selected structural complexlty variables explain the variation of support activlty drivers, especially process balancing, purchasing control and change activities This result partly supports the notion that structural production complexlty drivers have significant Influence on the level of support activities We may conclude that cost management should be considered from a strategic vlewpomt as well as from an operabon management viewpoint

Effort and Self-Selection Effects of Compensation Scheme Changes under a Multi-output Setting

The analytical research from agency theory suggests that an outputbased compensation can have effort effects and self-selection effects. This study extended Banker et al.'s recent study to a multi-output setting and investigated those two effects in an insurance firm using individual monthly sales data for multiple products as well as employment history data. We have demonstrated that these two effects exist under a multi-output setting. The results showed that compensation scheme changes could induce sales mix changes by the effort reallocation process. In addition sales performance of remaining employees is better aligned with the new compensation scheme that that of employees who had quit supporting the self-selection hypothesis

Changes in Order Backlog and Future Returns

This paper examines whether investors recognize the implications of changes in order backlog, a non-GAAP leading indicator, for future performance. A hedge portfolio strategy taking a long position in the highest decile of order backlog change and a short position in the lowest decile of order backlog change earns 13.7 percent in the year after the hedge portfolio is formed. Moreover, analysts forecast errors are large and negative (overoptimistic) for firms experiencing declines in order backlog. Overall, our evidence indicates that analysts underreact to the information in changes in order backlog. In addition, the market does not appear to see through the relation between changes in order backlog and future performance and underweights the implications of order backlog, which contrasts with the findings of Rajgopal, Shevlin, and Venkatachalam (2003)

Costing Rule and Cost Behavior in the Korean Defense Industry

This paper investigates the cost behavior in the Korean defense industry. Managers in the defense industry tend to have motivation to manage earnings because the costs incurring in the production process of defense articles are reimbursed based on cost plus contracts. Results are as follows. First, in the sample of the defense sector, SG&A costs and total manufacturing costs exhibited anti-stickiness whereas labor costs exhibited cost stickiness. Other cost components displayed symmetric cost behavior, Next, in the commercial sector, materials costs, direct material costs, total manufacturing costs, cost of goods sold, and total costs exhibited anti-stickiness. Labor costs showed cost stickiness whereas SG&A costs, overhead costs, and indirect production costs had symmetric cost behavior. Overall, the results reveals that the change rate of labor costs of the defense sector exhibits more cost stickiness to changes in sales than the commercial sector