Applying total cost of ownership for strategic procurement : three industrial case studies.

In this paper we elaborate on a Total Cost of Ownership supplier selection methodology that we have constructed using three real life case studies which are presented in this article. Analysing the value chain of the firm, data on the costs generated by the purchasing policy and on supplier performance are collected using Activity Based Costing (ABC). Since a spreadsheet cannot encompass all these costs, let alone optimise the supplier selection and inventory management policy, a mathematical programming model is used. Possible savings of between 6 and 14% are obtained for the three cases.Case studies; Studies;

The importance of the internal information environment for tax avoidance

We show that firms’ ability to avoid taxes is greatly affected by the quality of the firm’s internal information environment, with effective tax rates (ETRs) substantially lower for high internal information quality firms. Furthermore, we show that firms that experience an internal information quality improvement (reduction) are reducing (increasing) their ETRs. The effect of internal information quality on tax avoidance is strongest for firms in which information is likely to play a more important role. First, firms with high coordination needs because of their dispersed geographical or business industry presence benefit more from the reduced information asymmetry and improved information coordination between their various business units, allowing for more effective tax planning. Second, firms that are operating in a more uncertain environment are able to offset some of the negative effect of uncertainty on their ETRs through the quality of their internal information system. Because lower ETRs are obtained through better internal information quality, they do not come at the cost of increased risk in the tax positions taken: unrecognized tax benefits and ETR volatility are lower in high quality information environments

Analytics of costing system design

Costing is an estimation or approximation exercise: within a relevant range, management accountants seek to derive a linear function that approximates underlying true cost behaviour. This chapter discusses the research literature in this area, identifying where there is sufficient knowledge to guide practitioners and where further advances are needed in both costing research and practice. The focus is mainly on analytical and empirical work based on theoretical constructs. Section 10.2 briefly discusses what costing systems should seek to approximate, while Section 10.3 looks at how system objectives are pursued. The next section provides an overview of where approximations can go wrong. Section 10.5 discusses how to choose among alternative costing system approximations. Section 10.6 concludes with some avenues to advance costing system design research and practice

The cost effects of component commonality: a literature review through a management accounting lens

In this paper I review the component commonality literature through a management-accounting lens, focusing on the cost effects of an increase in the use of the same version of a component across multiple products. The bulk of this literature is of a theoretical nature, for example, analytical models, programming models, or conjectures based on casual observations of practice. Some of this literature purports, especially in introductions to the topic, that cost generally decreases with increasing commonality. However, based on a review of the theoretical literature using an activity-based costing framework and distinguishing between cost-driver and cost-rate effects, I conclude that the cost picture is more subtle. In other words, it is too early to make any general statement about the effect of increasing commonality on total costs. Moving to the limited empirical literature on the topic, consisting of case studies (sometimes combined with simulation) and empirical research on larger data sets, the conclusion that there is even more room for future research becomes evident.component commonality, unique versus common components, new product development, activity-based costing

Diversity in resource consumption patterns and costing system robustness to errors

Practitioners and academics hypothesize that when there is high diversity in resource consumption patterns, costing systems are more sensitive to errors. Given that firms' resources to enhance costing accuracy are typically constrained, it is argued that costing system refinement efforts should be focused on such cases, where they are likely to be most effective. However, little guidance is available on how to identify those situations where costing system refinement efforts (such as introducing an activity-based costing system) are likely to pay off most in terms of increased accuracy. Further, to our knowledge, the existing guidance provided by this high diversity rule of thumb has never been empirically tested. Using a simulation method, we address these issues in this paper. Specifically, we model various aspects, and degrees, of diversity in the resource consumption patterns to be reflected by the costing system and find that more diversity in resource consumption patterns only leads to increased costing system sensitivity to errors for some of the aspects of diversity studied. We also identify situations in which allocating costing system refinement resources to cases characterized by high diversity in resource consumption patterns is detrimental to improved accuracy