Abstract (EN):
This paper first identifies the conditions that support the construction of an
aggregate output, i.e. the conditions under which a single measure of output can be used
to accurately determine cost object incremental costs within a cost pool. This is a
significant issue which has not been fully explored in the management accounting
literature. Two conditions are jointly necessary and sufficient. The first one is the linear
homogeneity property associated with each cost object production function. This
condition ensures that costs are linear with output, which is essential if the cost reported
by an activity-based costing (ABC) system is also to be a relevant cost for
decision-making. The second is that all (cost object) cost driver rates for a given cost
pool are equal. This condition guarantees that the cost function at a given activity
depends on only one cost driver. The short run structure of ABC is also introduced. It is
shown that the fundamental ABC property of linearly between costs and output does not
generally hold in the short run, even assuming that technologies are linearly
homogeneous. Only under very particular conditions, such as when inputs are combined
in completely fixed proportions, are short run costs linear with output.
Type (Professor's evaluation):
Scientific
Notes:
https://www.fep.up.pt/investigacao/workingpapers/06.01.26_WP199_samuel.pdf