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Product Costing in the Presence of Endogenous Subcost Functions

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  • John Christensen

    (School of Business and Economics)

  • Joel S. Demski

    (School of Business and Economics)

Abstract

We study a multiproduct setting in which the underlying technology permits identification of economic subcost functions. We then explore the ability of various accounting procedures to produce relatively accurate marginal cost estimates. This ability varies with the underlying technology, as well as among the products. Moreover, a portfolio perspective emerges: with errors varying among the products the issue of where in product space to tolerate relatively large costing errors in order to help ensure relatively small costing errors in other products arises.

Suggested Citation

  • John Christensen & Joel S. Demski, 1997. "Product Costing in the Presence of Endogenous Subcost Functions," Review of Accounting Studies, Springer, vol. 2(1), pages 65-87, March.
    • Handle: RePEc:spr:reaccs:v:2:y:1997:i:1:d:10.1023_a:1018373627347
    DOI: 10.1023/A:1018373627347
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    References listed on IDEAS

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    3. Feltham, Ga, 1977. "Cost Aggregation - Information Economic-Analysis," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 15(1), pages 42-70.
    4. W. E. Diewert, 1974. "A Note on Aggregation and Elasticities of Substitution," Canadian Journal of Economics, Canadian Economics Association, vol. 7(1), pages 12-20, February.
    5. Eric Noreen & Naomi Soderstrom, 1997. "The Accuracy of Proportional Cost Models: Evidence from Hospital Service Departments," Review of Accounting Studies, Springer, vol. 2(1), pages 89-114, March.
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