Activity-Based Costing and Target Setting – A Case Study

Abstract

Changing a costing system is a major technical effort that is often accompanied by the behavioral resistance of employees who see their existing knowledge and skills of the existing costing system as devalued. This case study exhibits a setting where switching the costing system to activity-based costing (ABC) is imperative, but done in a way that preserves as many aspects of the existing system as possible. Thereby, middle managers exhibit a higher acceptance for basing transfer pricing and incentive systems on the new hybrid costing system. This case study can be used as basis for discussion or as an exam for executive and graduate students in accounting, management, and operations.