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- W1564080 abstract "Gaining an understanding of manufacturing overhead drivers is fundamental to designing an accurate cost management system. The designer associates general ledger costs with activities, then attaches activity costs to products as a function of demand for activities. The purpose of this article is to extend the existing body of cost driver literature and test the hypothesis that batch-level cost drivers as developed by Cooper [1990] can be affected by exogenous factors unrelated to units following a batch-level activity. Examples of exogenous factors include deviations from theoretically optimal production schedules to accommodate special orders, or to reverse the effects of an inventory stockout or oversupply. This study statistically tests the association of changes in batch-level activities with deviations from a theoretically optimal production schedule using data gathered at two manufacturing firms in two different industries. Cooper's hierarchy of overhead cost drivers outlines the primary theory underlying activity-based costing. The hierarchy consists of four overhead cost levels: unit-level, batch-level, product-sustaining, and facility-sustaining. Unit level activities tend to be primarily volume related (as are traditional cost allocation systems). Therefore, the unit level category does not add significantly to our understanding of activity-based costs. Additionally, facility-sustaining costs do not fit meaningfully into the other three levels; they represent residual costs. Facility-sustaining costs are allocated to cost objects in an arbitrary manner, if allocated at all. Thus, the major theoretical contribution of the overhead hierarchy lies in defining batch-level and product-sustaining categories. Evidence from this article suggests that further refinement of one of the primary activity-based categories, batch-level costs, is necessary. The article is organized into four sections. The first section motivates the study by identifying linkages to prior research. The next section describes manufacturing processes of two industries from which data were gathered. Then statistical methodology and results are presented. The article closes with a summary and conclusions section. Background and Motivation Activity-based Costing/Management (ABC)/(ABM) has received much attention in recent years, and researchers have demonstrated the applicability of ABM for measuring product costs and improving manufacturing performance (Albright and Sparr, 1994; Cooper, 1990, 1988a, 1988b, 1989a, 1989b; Greenwood and Reeve, 1992; King, 1991; Kaplan, 1990; Roth and Borthick, 1991; Smith and Leksan, 1991; Turney, 1991, 1989; Turney and Anderson, 1989). Additionally, cost driver analysis has been empirically evaluated by Babad and Balachandran (1993), Banker and Johnston (1993), and Datar et al. (1993). Swenson (1995) identified the use of ABC to support various decisions within manufacturing organizations. Key decision categories include strategic decisions, materials sourcing, pricing and product mix, customer profitability, operating decisions, process improvement, product design, and performance measurement. Thus, ABC is used by managers to support a wide variety of decision types. Anderson (1995) developed a framework for evaluating the evolutionary sequence of implementation stages. Consistent with the hierarchy of overhead costs developed by Robin Cooper (1990) and the definitions of activity-based management developed by Raffish and Turney (1991), this study, attempts to understand the impact of deviations from a theoretically optimal production pattern. Cooper identifies four levels of overhead as follows: unit-level, batch-level, product-sustaining, and facility-sustaining. This article focuses on batch-level activities to understand associated manufacturing complexities and costs. Batch-level activities are important because they result in costs independent of the number of units produced within a batch. …" @default.
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- W1564080 date "1998-09-22" @default.
- W1564080 modified "2023-09-28" @default.
- W1564080 title "The Effect of Deviations from Optimal Production Schedules on Batch-Level Cost Drivers" @default.
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