Homburg, C., Nasev, Julia and Plank, Philipp (2018). The impact of cost allocation errors on price and product-mix decisions. Rev. Quant. Financ. Account., 51 (2). S. 497 - 528. NEW YORK: SPRINGER. ISSN 1573-7179

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We use simulations to examine the impact of cost allocation errors on pricing and product-mix decisions. We compare the imperfect cost allocation of cost systems based on heuristics to the ideal cost allocation of a benchmark model. First, we find that more complex cost systems are associated with substantially lower profit errors. Second, we decompose the profit error and find that production quantity errors are larger than product portfolio errors indicating that reducing product portfolio errors is less critical in designing cost systems. We also document that overproduction errors are larger than underproduction errors and errors from keeping unprofitable products are larger than errors from dropping profitable products suggesting that cost systems tend to underestimate full costs. Third, we find that profit errors increase for more complex cost systems as resource sharing levels rise, which is an interesting counter intuitive result.

Item Type: Journal Article
CreatorsEmailORCIDORCID Put Code
URN: urn:nbn:de:hbz:38-179082
DOI: 10.1007/s11156-017-0678-1
Journal or Publication Title: Rev. Quant. Financ. Account.
Volume: 51
Number: 2
Page Range: S. 497 - 528
Date: 2018
Publisher: SPRINGER
Place of Publication: NEW YORK
ISSN: 1573-7179
Language: English
Faculty: Unspecified
Divisions: Unspecified
Subjects: no entry
Uncontrolled Keywords:
SYSTEMSMultiple languages
Business, FinanceMultiple languages
Refereed: Yes
URI: http://kups.ub.uni-koeln.de/id/eprint/17908


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