Many researchers claim that costing systems that provide materially more accurate or precise cost reports have a strict value‐enhancing effect on decisions (i.e., Cooper 1988, 1995; Cooper and Kaplan 1991; Christensen and Sharp 1994; Rogers. Comstock. and Pritz 1994; Swenson 1995; Gupta and King 1997). However, this study provides theoretical and empirical evidence that the value of more accurate cost information may be dependent upon the firm's competitive market structure, as well as the firm's product market strategy. We extend the theoretical work of Gal‐Or 1986 to incorporate an endogenous imprecise cost signal in two imperfect market structures: Cournot competition and Bertrand competition with imperfectly substitutable products. In addition, we theoretically link market structure to product market strategy. To examine product market strategy, we employ a laboratory markets design that allows for strategic reaction by a rival firm in each of these markets, because the competitive position of a firm is determined by its capacity to produce at low cost, or to differentiate its product from other products (Porter 1985). Consistent with our theoretical work, we argue that firms that compete on the basis of cost leadership (which we demonstrate may be characterized as Cournot competition), benefit through increased profits from increased product cost accuracy, whereas firms that compete on the basis of product differentiation (which we demonstrate may be characterized as Benrand competition) do not benefit from such increased product cost accuracy. Our results are consistent with this contention. That is, profit is higher in the experimental cost leadership markets (operationalized as Cournot markets) when subjects know their true cost, while profit is higher in the experimental product differentiation markets (operationalized as Bertrand markets) when subjects receive uninformative cost reports and make their decisions based on expected costs. These results suggest that the value of more accurate cost reports may be dependent upon the firm's competitive market structure strategy and product market strategy.
Using analytical and simulation techniques, we investigate the effect of inter-firm cost correlation, IT investment, and product cost accuracy on production decisions, and ultimately firm profitability in an imperfectly competitive market. Along with an unprecedented growth in investments in information technology (IT) over the last two decades, firms have made significant investments in IT to increase product cost accuracy. Yet, a variety of studies present mixed evidence as to the linkage between IT investment, product cost accuracy, and organizational performance. Further, while previous research has shown that IT may contribute to the improvement of organizational performance, contextual factors are important. We reexamine this issue in an imperfectly competitive market and product cost setting. We assert that knowledge of inter-firm cost correlation may be used to reduce the IT investment needed to achieve product cost accuracy and thereby optimize production and ultimately firm profit. To motivate our hypotheses, we develop and analyze an analytical model which incorporates IT investment, a costly, endogenous, imprecise product cost report, and inter-firm cost correlation. Using simulation techniques, we illustrate that production decisions informed by inter-firm cost correlation require less IT investment and result in higher firm profitability. Our emphasis on the initial design of product costing systems and the related IT requirements definition phase suggest that our result could be helpful to firm managers in establishing the optimal levels of IT investment and product cost accuracy in their specific product market setting.
Current accounting methods in intercollegiate athletics make it difficult for leaders to assess and understand the true cost of each sport team operations. Institutional and athletics leaders often make decisions concerning sport sponsorship/offerings, budget allocations, overall program operations, and review Title IX compliance based on information that may not truly capture the cost of each sport. Additionally, intercollegiate athletics reform groups and the federal government are calling for athletic departments to report more consistent, accurate, and transparent financial data. The purpose of this paper is to respond to the call for accounting reform in intercollegiate athletics via an innovative application of activity-based costing (ABC) to one NCAA Football Bowl Subdivision (FBS) athletics department. ABC was applied to the athletic department budget report with results showing how previously established ABC cost drivers for intercollegiate athletics (Lawrence, Gabriel, & Tuttle, 2010) and reallocation of expenses back to specific sports allow for a greater understanding of the cost of each sport.
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