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Simulation-based analysis of product costing systems and errors in product cost information
Citation Link: https://doi.org/10.15480/882.15187
Publikationstyp
Doctoral Thesis
Date Issued
2025
Sprache
English
Author(s)
Advisor
Referee
Title Granting Institution
Technische Universität Hamburg
Place of Title Granting Institution
Hamburg
Examination Date
2025-04-17
Institute
TORE-DOI
Peer Reviewed
false
This thesis examines how errors in product costing systems arise and cause distorted product costs. Accurate information about product costs is essential for a firm's long-term profitability because inaccuracies in product cost information can lead to suboptimal cost-based decisions, such as pricing or resource allocation. To obtain accurate product costs, firms are required to measure all products’ resource consumptions accurately and link these to the cost-evoking products. However, due to the complexity of firms’ resource consumption this is economically too effortful. Therefore, firms design and employ costing systems that approximate the underlying resource consumption to allocate costs to products. The costing system design balances implementation and maintenance efforts with the costs and consequences of inaccurate product cost information. To overcome the challenge of this trade-off, firms require an understanding of how errors in cost information arise. This can help answering questions, such as where refining a costing system likely pays off or which products are potentially over- or undercosted. This thesis summarizes recurring observations from prior studies regarding errors in product cost information to provide the current understanding of how these errors arise and manifest in different products’ costs. From there, two prominent simulation models from this literature are replicated to test the internal validity of their results and recommendations concerning errors in product costs. Based on successful replications, an Activity-Based Costing (ABC) hierarchy, derived from the empirical and theoretical literature, is implemented into the models to examine their results’ external validity toward this change in underlying resource consumption. More specifically, this extension tests the robustness of costing system design rules and the widely shared pattern of volume-based costing (VBC) cross-subsidization. Lastly, this thesis examines the emergence and mechanism behind errors in single product costs as opposed to the whole portfolio of a firm to determine which products are usually under- or overcosted. Overall, the results contribute to the literature on costing system design and cost accounting by expanding the understanding of how errors in product cost information arise, which refinements of a costing system reduce errors, and how errors distribute to single products. This provides practical guidance for managers designing a costing system or making decisions based on reported product costs.
Subjects
cost accounting
costing system design
product costs
cost management
simulation
DDC Class
650: Management, Public Relations
338.5: Microeconomics
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Schmidt_Mark_Simulation-based Analysis of Product Costing Systems and Errors in Product Cost Information.pdf
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