IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v26y1980i8p826-839.html
   My bibliography  Save this article

An Activity Analysis Approach to Unit Costing with Multiple Interactive Products

Author

Listed:
  • Hiroyuki Itami

    (Hitotsubashi University)

  • Robert S. Kaplan

    (Carnegie-Mellon University)

Abstract

Average variable costs are not directly defined for multiple products produced in complex production settings. An activity analysis model can be used for basic cost measurement and for building a linear programming model of manufacturing operations. The model can then be used not only to compute the optimal production plan and associated marginal costs but also to assign average costs to final products. The activity analysis framework enables many overhead costs, such as maintenance, overtime, shift premiums, and indirect labor and materials, to be treated within the model. Thus, they are absorbed directly into the cost of final products rather than allocated indirectly through an overhead charge. Three average costing methods based on sacrifice value (marginal costs) and benefit value (marginal revenue) of products are considered. The method based entirely on the market value of products has less desirable properties than allocation methods which use the dual variables (marginal costs) from the programming model. Another benefit is that various cost allocation methods using input-output analysis can be considered as special cases of average costing methods presented in this paper.

Suggested Citation

  • Hiroyuki Itami & Robert S. Kaplan, 1980. "An Activity Analysis Approach to Unit Costing with Multiple Interactive Products," Management Science, INFORMS, vol. 26(8), pages 826-839, August.
  • Handle: RePEc:inm:ormnsc:v:26:y:1980:i:8:p:826-839
    DOI: 10.1287/mnsc.26.8.826
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.26.8.826
    Download Restriction: no

    File URL: https://libkey.io/10.1287/mnsc.26.8.826?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kaneko, Ikuyo, 1984. "Global Optimization in a Decentralized Decision Making Process," Hitotsubashi Journal of commerce and management, Hitotsubashi University, vol. 19(1), pages 40-54, October.
    2. Tehrani Nejad Moghaddam, Alireza & Michelot, Christian, 2009. "A contribution to the linear programming approach to joint cost allocation: Methodology and application," European Journal of Operational Research, Elsevier, vol. 197(3), pages 999-1011, September.
    3. Klosterhalfen, Steffen T. & Kallrath, Josef & Frey, Markus M. & Schreieck, Anna & Blackburn, Robert & Buchmann, Jan & Weidner, Felix, 2019. "Creating cost transparency to support strategic planning in complex chemical value chains," European Journal of Operational Research, Elsevier, vol. 279(2), pages 605-619.
    4. Lloyd R. Amey & Jean†Louis Goffin, 1988. "Joint product decisions: The variable proportions case," Contemporary Accounting Research, John Wiley & Sons, vol. 5(1), pages 174-198, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:26:y:1980:i:8:p:826-839. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.