| Abstract: |
The academic accounting literature has established that the conditions under
which costing systems in general and Activity Based Costing (ABC) in
particular provide accurate costs are very stringent. Less is known, however,
about the nature, level and bias of costing errors and their interactions,
when these conditions are not met. The main problem to overcome to enable us
to learn about these is the notion of the unobservable true cost benchmark to
which to compare the costing system approximation. This paper presents a
simulation method to deal with this problem, allowing a variety of research
questions in this research area to be addressed with more generalizable
answers. Using our methodology, we test a variety of hypotheses on the
interaction between various errors in costing system design that were
developed in the previous analytical, empirical, and practitioner literature.
We also provide some interesting new insights on interactions between errors
that were previously not discussed in the literature. This paper presents new
results on (1) conditions under which partial refinement in costing systems
does or does not work to improve overall accuracy, (2) the contexts in which
it is most effective to correct a particular type of error in terms of
improving overall accuracy and (3) indicators of robustness or sensitivity of
costing system designs to errors. In doing so, we also provide insights
relevant to practitioners, costing system designers and users of costing
information alike. |