ABSTRACT
To achieve continuous improvements in the modern dynamic and hypercompetitive environment (D’Aveni 1994), companies must be agile (Goldman et al. 1995) and costing systems need to keep providing accurate cost information to managers, who base many decisions on reported product costs (e.g., Cooper and Kaplan 1988a; Shim and Sudit 1995). However, accurate cost information, by itself, does not invoke actions and decisions leading to improved profits and operating performance (Cooper et al. 1992). To identify improvement opportunities, a costing system should also encourage managers to pay more attention to reducing costs and trying to accomplish outcomes with fewer demands on organizational resources (Turney 1992). Hence, excluding inventory valuation, the purpose of costing is twofold. On the one hand, some cost analyses mainly require accurate information to improve the quality of decision-making (e.g., pricing, make-or-buy, product mix optimization, purchasing fixed assets, etc.). In this case we talk about costing for decision-making. On the other hand, cost analyses and performance reports may also assist managers in better controlling their departments (e.g., budgets, performance measurement and evaluation systems, etc.). This part is called costing for control. Referring to the first purpose, the focus of this chapter is mainly on the use of cost information to support decision-making. More specifically, the chapter includes a review of studies on when and why activity-based costing (ABC), as well as its recent extension, time-driven ABC, can benefit the use of management accounting for decision-making.
