Abstract
We study a multiproduct setting in which the underlying technology permits identification of economic subcost functions. We then explore the ability of various accounting procedures to produce relatively accurate marginal cost estimates. This ability varies with the underlying technology, as well as among the products. Moreover, a portfolio perspective emerges: with errors varying among the products the issue of where in product space to tolerate relatively large costing errors in order to help ensure relatively small costing errors in other products arises.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Anderson, S. (1995). "Measuring the Impact of Product Mix Heterogeneity on Manufacturing Overhead Cost." The Accounting Review 70, 363-387.
Balakrishnan, R., and K. Sivaramakrishnan. (1996). "Is Assigning Capacity Costs to Individual Products Necessary for Capacity Planning?" Accounting Horizons 10, 1-11.
Banker, R., and G. Potter. (1993). "Economic Implications of Single Cost Driver Systems." Journal of Munagement Accounting Research 5, 15-31.
Banker, R., G. Potter, and R. Schroeder. (1995). "An Empirical Analysis of Manufacturing Overhead Cost Drivers." Journal of Accounting & Economics 19, 115-137.
Christensen, J., and J. Demski. (1995). "The Classical Foundations of 'Modem' Costing." Management Accounting Research 6, 13-32.
Datar, S., and M. Gupta. (1994). "Aggregation, Specification and Measurement Errors in Product Costing." The Accounting Review 69, 567-591.
Demski, J. (1994). Managerial Uses of Accounting Information. Boston: Kluwer Academic Publishers.
Diewert, W. (1974). "A Note on Aggregation and Elasticities of Substitution." Canadian Journal of Economics VII, 12-20.
Feltham, G. (1977). "Cost Aggregation: An Information Economic Analysis." Journal of Accounting Research 15, 42-70.
Hayes, R., and I. Millar. (1990). "Measuring Production Efficiency in a Not-For-Profit Setting." The Accounting Review 65, 505-519.
Malinvaud, E. (1972). Lectures on Microeconomic Theory. Amsterdam: North-Holland Publishing Company.
Miller, J., and T. Vollman. (1985). "The Hidden Factory." Harvard Business Review Sept.-Oct., 142-150.
Noreen, E. (1991). "Conditions Under Which Activity-Based Cost Systems Provide Relevant Costs." Journal of Management Accounting Research 3, 159-168.
Noreen, E., and N. Soderstrom. (1994). "Are Overhead Costs Strictly Proportional to Activity? Evidence From Hospital Service Departments." Journal of Accounting and Economics 17, 255-278.
Noreen, E., and N. Soderstrom. (1997). "The Accuracy of Proportional Cost Models: Evidence from Hospital Service Departments." Review of Accounting Studies 2, 89-114.
Takayama, A. (1985). Mathematical Economics. Cambridge: Cambridge University Press.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Christensen, J., Demski, J.S. Product Costing in the Presence of Endogenous Subcost Functions. Review of Accounting Studies 2, 65–87 (1997). https://doi.org/10.1023/A:1018373627347
Issue Date:
DOI: https://doi.org/10.1023/A:1018373627347