Comparing the Measurement Error Robustness of ABC and Time-driven ABC: a Simulation Analysis
Abstract
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Using simulation analysis, this paper compares the measurement error robustness of traditional ABC and time-driven ABC as a function of unused capacity and diversity in the total actual productive time spent on activities. The results show that a traditional ABC system that excludes the cost of idle capacity is more sensitive to measurement errors than a time-driven ABC system because the impact of measurement error in the estimated standard activity driver volumes (Stage II) is stronger than that in the resource drivers (Stage I). Compared with a traditional ABC system that includes the cost of idle capacity, a time-driven ABC subject to symmetrical measurement error is also more robust to measurement errors, except when capacity utilization and diversity in the total actual productive time spent on activities are high. Finally, overestimation bias in unit time estimates shifts the results in favor of traditional ABC when there is little unused capacity. Keywords: time-driven activity-based costing; costing system design; costing errors; simulation Sophie Hoozee is member Management Accounting and Control at Gent University. The research is focused on activity based costing, management accounting and control and time-driven ABC. |
| Contact information: |
| Paulo Perego |
