Measurement Error in Time-driven Costing: An Experimental Comparison of Different Approaches to Estimating Time Consumption

61 Pages Posted: 21 Aug 2013 Last revised: 8 Jan 2019

See all articles by Karl Schuhmacher

Karl Schuhmacher

Emory University - Goizueta Business School

Michael Burkert

University of Fribourg - Department of Business Administration

Date Written: August 19, 2013

Abstract

Many organizations utilize time surveys for costing purposes and ask employees to provide subjective estimates of their time use. We conduct an experiment to examine measurement error, i.e., the accuracy of subjective time estimates, under different approaches to estimating time consumption. Specifically, we compare an overall approach, as often described in textbooks, and an individual approach, as more recently proposed by practitioners. While the costing literature assumes that measurement error is similar between the two approaches, practitioners claim that the individual approach produces more accurate time estimates and, thus, better cost information than the overall approach. We test this claim given the lack of empirical evidence and argue that the two approaches evoke different cognitive processes. In line with our hypotheses, we find overestimation of time under the overall approach and underestimation of time under the individual approach. We also provide evidence that the individual approach leads to better proportional allocations of time than the overall approach. Our study contributes to the academic literature and adds to the practitioner-led debate about differences between traditional ABC (using an overall approach) and Time-Driven ABC (using an individual approach). The results are relevant to designers of cost and resource planning systems as well as managers using cost information for decision-making.

Keywords: Cost systems, activity-based costing, resource consumption, capacity utilization, measurement error, time estimation

JEL Classification: M41

Suggested Citation

Schuhmacher, Karl and Burkert, Michael, Measurement Error in Time-driven Costing: An Experimental Comparison of Different Approaches to Estimating Time Consumption (August 19, 2013). AAA 2014 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2312085 or http://dx.doi.org/10.2139/ssrn.2312085

Karl Schuhmacher (Contact Author)

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

Michael Burkert

University of Fribourg - Department of Business Administration ( email )

Bd. de PĂ©rolles 90
Fribourg
Switzerland

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