Using relative profits as an alternative to activity-based costing [An article from: International Journal of Production Economics]

This digital document is a journal article from International Journal of Production Economics, published by Elsevier in 2005. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
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.