The Non-Linear Relation between Price Competition and Cost Allocation Refinement

Abstract

Most research into the relation between competition and management accounting information and control systems focuses on the overall intensity of an organization’s competitive environment. Little research considers the dimensions of cost allocation methods or the individual dimensions of the type of intensity of competition. This study investigates the potential non-linear relation between the intensity of price competition and cost accounting systems, specifically the refinement of cost allocation methods. Based on a sample of 73 responses from a survey of Australian manufacturing and service organizations, the study finds a quadratic relation of the intensity of price competition on cost allocation refinement. This finding is consistent with recent studies emphasising into the importance of distinguishing between competition intensity and competition type. The study also contributes to the management accounting information and control system literature, specifically in regard to explaining the choice of cost allocation methods.