A risk analysis approach for time equation-based costing

S. Hoozée (), L. Vermeire and W. Bruggeman

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: Recently, time equation-based costing has been developed as a cost modelling approach in which activity times are calculated using time equations. Drawing on mathematical statistics, this paper develops a risk analysis approach and shows how it can be used to determine the impact of measurement errors in time equation input parameters on the variability of estimated activity times. Furthermore, a method is elaborated that can be used to evaluate the impact of adding terms to time equations on the reliability of estimated activity times and conditions are derived under which this refinement enhances the reliability of estimated activity times. More specifically, the results suggest that when time equations are refined, the reliability of the estimated activity time rarely deteriorates once the dominant time driver effects (i.e., in terms of large means) have been included in the equation.

Keywords: time equation; risk analysis; costing accuracy; costing errors; activitybased costing; coefficient of variation (search for similar items in EconPapers)
Date: 2009-01
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Persistent link: http://EconPapers.repec.org/RePEc:rug:rugwps:09/556

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