Cost system and incentive structure effects on innovation, efficiency and profitability in teams

Article Abstract:

The relatively few full-scale adoptions of activity-based costing (ABC) combined with ABC implementation foul-ups have stimulated debates about the costs and advantages of ABC compared to the more traditional volume-based costing systems. Incentives that motivate workers to cooperate are necessary for the successful process improvements based on ABC. On the other hand, when competitive incentives are combined with ABC, the result can be surprising and negative. Investigations were conducted on how accounting cost system and incentive structure choices interact. Results showed that profits are maximum when ABC is associated with group-based incentives, which offer high motivation to cooperate. On the other hand, the lowest level of profit is obtained when the same ABC is linked with tournament-based incentives.

Cost Accounting, Incentives (Business)

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Allocations of sunk capacity costs and joint costs in a linear principal-agent model

Article Abstract:

A study was conducted to examine how the desirable tradeoff between risk-sharing and incentives can be achieved in the presence of capacity costs by modifying the performance measures on which the contract is based. This provides an agency parallel to the analysis of Banker and Hughes (1994), which showed the economic sufficiency of normal activity-based unit cost for optimal pricing decisions. Just like Banker and Hughes, this study revealed that the optimal capacity cost allocation is an exclusive function of budgeted volume when capacity is usable in developing a single product. However, analysis of a joint production setting demonstrated that the optimal allocation was based on the joint products' estimated net realizable values.

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Does ABC information exacerbate hold-up problems in buyer-supplier negotiations?

Article Abstract:

A study was conducted to examine negotiations between buyers and suppliers that require sharing cost details. Negotiators are expected to be more reluctant to share fine information compared with less detailed information, based on certain criteria. Findings show that strategic concerns regarding inequitable outcomes direct fewer negotiating pairs to share fine information than coarse information.

United States, Science & research, Influence, Activity-based costing, Vendor relations, Report

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