Research Paper

Accounting Horizons
Vol. 26, No. 1
2012
pp. 21–41

American Accounting Association
DOI: 10.2308/acch-10197

Product Costs as Decision Aids: An Analysis of Alternative Approaches (Part 2)
Ramji Balakrishnan, Eva Labro, and K. Sivaramakrishnan
SYNOPSIS: In the first part of this two-part paper (Balakrishnan et al. 2012), we used a common platform to characterize four popular approaches for computing product costs.
In this part, we compare the approaches along three dimensions: (1) the cost of system implementation and maintenance, (2) the ability to provide decision-relevant data, and
(3) the provision of incentives to manage the demand for resources. As no system clearly dominates, we show how future approaches might blend the best features of current systems. Keywords: ABC; RCA; TDABC; costing systems.

INTRODUCTION

I

n Part 1 of this paper, we developed a common terminology and platform to characterize four well-known approaches for computing product costs as they have evolved over time. In particular, we described traditional volume-based allocation systems, activity-based costing
(ABC) systems, resource consumption accounting (RCA), and time-driven activity-based costing
(TDABC) systems. In this second part, we evaluate these systems on three important dimensions that are particularly relevant when considering the decision-making role for product costs:1

Ramji Balakrishnan is a Professor at The University of Iowa, Eva Labro is an Associate Professor at The
University of North Carolina at Chapel Hill, and K. Sivaramakrishnan is a Professor at Texas A&M
University.
We thank Eddy Cardinaels, B. Douglas Clinton, Gary Cokins, Shane Dikolli, Stephen Hansen, Ella Mae Matsumura,
Karen Sedatole, Michael Shields, Naomi Soderstrom, K. Surysekar, Anton van der Merwe, and Timothy West for comments on earlier versions of this manuscript. Robert Kaplan and two anonymous referees helped us refine our message as well. We are responsible for

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