The Value of Activity‐Based Costing in Competitive Pricing Decisions
Cardinaels, Eddy Roodhooft, Filip Warlop, Luk
Cardinaels, Eddy
Roodhooft, Filip
Warlop, Luk
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Publication Type
Journal article
Editor
Supervisor
Publication Year
2004-01-01
Journal
Journal of Management Accounting Research
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Publication Volume
16
Publication Issue
1
Publication Begin page
133
Publication End page
148
Publication Number of pages
16
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Abstract
This paper reports experimental evidence on the merits of activity-based costing (ABC) for price-setting in competitive markets that differ in their ability to provide informative feedback. Earlier research has shown that informative market feedback dominates the effects of cost-system design. In a multimarket context involving cost allocations, the present results suggest that cost-system refinement can play a significant role in price-setting, even in the presence of informative market feedback. Specifically, ABC provides benefits over volume-based costing in market segments in which biased cost allocations produce accounting losses that hinder learning from superior competitors. Compared to these informative settings, additional evidence also shows that performance is negatively affected by less informative market feedback. Yet in less informative settings, ABC still outperforms traditional costing, presumably because it helps to filter irrelevant competitor feedback from the decision process.
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Keywords
3501 Accounting, Auditing and Accountability, 35 Commerce, Management, Tourism and Services