Traditional Cost Systems Research Articles

An Activity-Based Costing of Wine

Recent changes in wine consumption have given rise to an evolution in production processes that render useless traditional cost systems. In order to face the complexity and variety of the winemaking process, we propose to use an adapted Activity-Based Costing (ABC) system for the cost calculation of winemaking. This system gets valuable information about winemaking costs to assist winery managers in improving their business competitiveness.

A Framework to Accomplish Strategic Cost Management

Currently, economic and technological developments are growing faster in an unprecedented way. The outcome is changing a great deal of concepts, transactions, and increasing competition allover the world. GATT agreement and emerging of large conglomerates extending competition zone to encompass the whole world. In addition, the improvements in information technology, communication means, and production systems open new horizons. The main consequence is to concentrate on quality and attain consumer's satisfaction. To respond, Companies pay a great attention to accomplish strategic cost management in order to overcome tough competition in local, international, and online markets. Traditional cost systems, those concentrate only on measuring and controlling products/services cost, are not sufficient to deal with new economic and technological developments. Therefore, companies shifted to strategic cost management as a powerful tool to attain competitive advantage and to maximize earnings and in short run and in long run as well. Prior research is constrained to develop and evaluate different tools to accomplish strategic cost management. There is no integrated framework to combine those tools and could be accepted from interested researcher in cost/management accounting and strategic management. This study aims to analyze tools of strategic cost management to introduce an integrated framework that could be useful to companies' stakeholder in short run and in long run as well.

Improving activity-based costing heuristics by higher-level cost drivers

Activity-based costing (ABC) tries to allocate overhead costs to cost objects more accurately than traditional cost systems. However, since ABC proportionalizes overhead costs it is a heuristic. The paper uses simulations and mixed-integer programming to analyze the extent of the sub-optimality incurred by ABC-heuristics. While previous research has focused on ABC systems with a simple set of cost drivers, thereby restricting the potential of ABC as a heuristic, the paper analyzes the effects of establishing a cost driver corresponding to a higher cost level. Specifically, a portfolio-based cost driver captures the demand heterogeneity triggered by the portfolio. This heterogeneity driver is then used to proportionalize all costs due to inflexible overhead resources. One of the main findings is that such a heterogeneity driver improves the quality of ABC-heuristics significantly.

Using relative profits as an alternative to activity-based costing

Activity-based costing (ABC) tries to assign overhead costs to cost objects more accurately than traditional cost systems. However, due to its severe separability and proportionality assumptions using ABC for decision-making may lead to a considerable economic loss. To evaluate products on the basis of their activity-based costs, we therefore use a data envelopment analysis (DEA)-like approach which mainly separates the product portfolio into a set of potentially optimal and a set of non-potentially optimal products. In contrast to DEA, we do not need any ad hoc assumptions about the production possibility set or returns to scale. Furthermore, it will turn out that in contrast to conventional ABC, we will not have to determine the cost driver rates ex ante, reducing information cost.

Pecos Products: A Project Introducing Complexity into the Study of Activity-Based Costing

This case is designed to help students gain a more thorough understanding of activity-based costing (ABC) than is usually obtained in introductory managerial accounting courses. If you have taken such a course, you have probably seen, in general, simple examples of activity-based costing. However, ABC can be more complex than these examples indicate for three reasons: (1) the mechanics of ABC are far more complex than these simple examples indicate; (2) many of the design choices required in an ABC system, which are critical to the cost-benefit decision, are omitted from the simple examples; and (3) without adequate detail, it is hard to see how economic consequences arise from the choice of costing systems. The Pecos Products ABC Design Project (the “project”) addresses these issues by providing a hypothetical company with a detailed business scenario and asking you to help with the cost-system-design decision. To accomplish this, you will have to think about traditional cost system and ABC design issues, delve deeply into the cost system mechanics, and evaluate the benefits (economic consequences) of an ABC system in light of the cost and effort required to create it.

Application of discrete event simulation to the activity based costing of manufacturing systems

In the last two decades traditional cost accounting practices have been unable to respond to the changing information needs of manufacturing management. Activity Based Costing (ABC) is a method which can solve many of the limitations of traditional cost systems. This method of accounting involves the breaking down of the individual activities and costing of the amount of time spent on each step of the manufacture of a product. This paper illustrates how Discrete Event Simulation may be used to evaluate the ABC of a manufacturing system. A visual interactive simulation software WITNESS is used to model a semi-automated Printed Circuit Board (PCB) assembly line. The PCB assembly line case study demonstrates how ABC can be applied to a manufacturing system using simulation modelling techniques. The paper also discusses further applications of ABC in the manufacturing environment and includes a case study on the operational quality cost.

Activity-based costing model for joint products

Activity-Based Costing (ABC) is developed to improve the accuracy of product cost data derived from the traditional cost system. ABC transforms indirect (overhead) cost in the traditional cost system into direct costs by using activities as the intermediums of cost assignment. ABC traces indirect costs to the activities and then distributes the activity costs to the products. ABC has been extensively used in the practice and discussed in the literature. The purpose of this paper is to present the ABC model for joint products. A simplified illustrative case is used to demonstrate the product costing for joint products under ABC.

Competitive factors and performance measurement: Applying the theory of constraints to meet customer needs

This article presents an analysis describing how the selection of proper competitive factors and modification to a firm's performance measurement system provide the means to control, coordinate and communicate product flow, from order receipt to customer shipment, through the production process. The article also discusses how modifications to the traditional manufacturing planning and control model to reflect the principles of the Theory of Constraints (TOC), along with the selection of proper competitive factors provide a means of synchronizing the production process to an ever-more demanding market. A performance measurement system that directs management's attention to the needs of the customers rather than to the internal concerns traditionally measured is advanced. A case study is included that characterizes the operation of an engineer-to-order manufacturing organization. This firm changed its competitive focus and its performance measurement system in response to a erratic sales pattern brought about by an inability to respond to customers requirements in terms of lead time and delivery promises. Using the principles advocated by TOC the organization was able to reduce lead time and improve delivery performance to a point where the operation became a preferred manufacturing location in the corporation. The cost measurement system was changed from a traditional standard cost system to a system utilizing TOC principles. A cost measurement system that measures global costs rather than individual component cost can also be a decisive factor in coordinating sales and manufacturing efforts within an organization. The relationship between these various factors is explored in the case study.

As inadequações do sistema tradicional de custos em um novo ambiente de fabricação

Este trabalho apresenta os principais problemas relativos à ampla utilização de Sistemas de Custos tradicionais em um ambiente de produção que se caracteriza pela inovação na adoção de novas tecnologias, tanto em nível geral como TQC. JIT, CIM - quanto em uiveis específicos - tais como CAD, CAE. CAPP. MRP. MRPII, SPC. CNC. Robótica e FMS. Demonstra-se, portanto, a necessidade de Sistemas de Custos que atendam adequadamente suas funções, com participação efetiva na busca pela excelência gerencial das empresas.

Predictive Ability of Alternative Performance Measurement Models

The variance data generated by a traditional standard cost system are thought to provide useful measures of performance for a variety of purposes [5, 19]. However, there are alternative methods of computing variances so that management is faced with the problem of choosing an optimum method. In making a choice, the issue of operational' selection criteria naturally arises. At a conceptual level, we should select that alternative which results in the highest possible goal attainment for the firm. Unfortunately, operational use of this criterion requires explicit knowledge of the firm's goals and decision processes. Because neither is explicitly known, we must evaluate managerial accounting alternatives with a set of surrogate evaluators. One such surrogate, predictive ability, is used in this paper to assess three alternative costing models that management may use-direct costing, absorption costing, and an ex post optimum model.