“Whoa! It's like Spotify but for academic articles.”

Instant Access to Thousands of Journals for just $40/month

Get 2 Weeks Free

Absorption versus direct costing: the relevance of opportunity costs in the management of congested stochastic production systems

This paper investigates the relative performance of absorption versus direct costing procedures. Traditionally, absorption costing procedures have been defended on the basis of them acting as a proxy for hard to measure opportunity costs. We question the validity of this traditional defence by explicitly considering the extent to which absorption costing-based accounting calculations actually provide good proxies. Our analysis shows that in some situations absorption costing so over estimates opportunity costs that it would be preferable to use direct costing even though this implicitly assumes opportunity costs are zero. Thus, given that we establish that one can not always use the existence of opportunity costs as a defence for the adoption of absorption costing procedures we next identify specific conditions for which if satisfied, we can unambiguously defend the adoption of absorption costing. We develop an ‘open acceptance condition’ which if satisfied insures that a production system directed by absorption costs out performs a system based upon direct costs. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Management Accounting Research Elsevier
Loading next page...

You're reading a free preview. Subscribe to read the entire article.

And millions more from thousands of peer-reviewed journals, for just $40/month

Get 2 Weeks Free

To be the best researcher, you need access to the best research

  • With DeepDyve, you can stop worrying about how much articles cost, or if it's too much hassle to order — it's all at your fingertips. Your research is important and deserves the top content.
  • Read from thousands of the leading scholarly journals from Springer, Elsevier, Nature, IEEE, Wiley-Blackwell and more.
  • All the latest content is available, no embargo periods.