Accuracy is a highly relevant topic for the allocation of service costs. For the allocation of service departments’ costs to production departments, three commonly known alternatives exist. These allocation methods differ in their complexity as well as in final cost allocation. Considering the many decisions that are based on costing information, one could assume that any firm seeks for the highest possible degree of accuracy. But improving the accuracy means increasing complexity. In a cost-benefit analysis the costs of increased accuracy through increased complexity have to be weighed against the benefit of making better decisions. This trade-off between accuracy and complexity has been intensively discussed in literature. Throughout this research, different firm settings and the resulting cost allocation for the three alternatives are analyzed via simulation. Thereby, the deviation can be quantified and the methods are evaluated based on their actual performance. It is tested if the trade-off between complexity and accuracy (as a performance indicator) holds in this context.
Hocke, Sina and Meyer, Matthias and Lorscheid, Iris (2015). Improving simulation model analysis and communication via design of experiment principles: An example from the simulation-based design of cost accounting systems. Journal of Management Control. 26 (2-3), 131-155 [link]
Hocke, Sina and Meyer, Matthias (2016): Should we stop using the step method? A simulation-based analysis of methods for allocating support service costs. American Accounting Association Annual Meeting, New York
Hocke, Sina and Meyer, Matthias (2015): Should we stop using the step method? Simulation-based analysis of cost accounting systems. 38th European Accounting Association Annual Congress and Doctoral Colloquium, Glasgow
Hocke, Sina and Meyer, Matthias (2014): Should we stop using the step method? A simulation-based analysis of methods for allocating support service costs. 8th Conference on New Directions in Management Accounting, Brussel
Hocke Sina and Meyer, Matthias (2014): Simulation-based analysis of cost-accounting. 20th Conference of the International Federation of Operational Research Societies, Barcelona.
Hocke, Sina and Meyer, Matthias (2014): Simulation-based analysis of cost-accounting. 12th Manufacturing Accounting Research Conference, Copenhagen.
Hocke, Sina (2014): Simulation-based analysis of German cost-accounting. Doctoral Colloquium at the 11th Annual Conference for Management Accounting Research, Vallendar