Abstract
Economic value added, which is the currently popular term for the traditional accounting concept of residual income (RI), subtracts from operating income an interest charge for invested capital. This paper provides an activity-based cost system that supports RI maximization. We construct a model of participative budgeting for a multi-activity firm in which the cost system allocates plant and equipment cost to products using a formula that includes the interest charge. The budget system we design enables decision makers to identify RI-improving opportunities for outsourcing and dropping unprofitable products. The budget system also has the "open-architecture" property that additional informal communication among activity managers can only serve to increase RI.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 231-264 |
| Number of pages | 34 |
| Journal | Review of Accounting Studies |
| Volume | 2 |
| Issue number | 3 |
| DOIs | |
| State | Published - Jan 1 1998 |
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All Science Journal Classification (ASJC) codes
- Accounting
- Business, Management and Accounting(all)
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Activity-based costing for economic value added®. / Anctil, Regina M.; Jordan, James Schuyler; Mukherji, Arujt.
In: Review of Accounting Studies, Vol. 2, No. 3, 01.01.1998, p. 231-264.Research output: Contribution to journal › Article
TY - JOUR
T1 - Activity-based costing for economic value added®
AU - Anctil, Regina M.
AU - Jordan, James Schuyler
AU - Mukherji, Arujt
PY - 1998/1/1
Y1 - 1998/1/1
N2 - Economic value added, which is the currently popular term for the traditional accounting concept of residual income (RI), subtracts from operating income an interest charge for invested capital. This paper provides an activity-based cost system that supports RI maximization. We construct a model of participative budgeting for a multi-activity firm in which the cost system allocates plant and equipment cost to products using a formula that includes the interest charge. The budget system we design enables decision makers to identify RI-improving opportunities for outsourcing and dropping unprofitable products. The budget system also has the "open-architecture" property that additional informal communication among activity managers can only serve to increase RI.
AB - Economic value added, which is the currently popular term for the traditional accounting concept of residual income (RI), subtracts from operating income an interest charge for invested capital. This paper provides an activity-based cost system that supports RI maximization. We construct a model of participative budgeting for a multi-activity firm in which the cost system allocates plant and equipment cost to products using a formula that includes the interest charge. The budget system we design enables decision makers to identify RI-improving opportunities for outsourcing and dropping unprofitable products. The budget system also has the "open-architecture" property that additional informal communication among activity managers can only serve to increase RI.
UR - http://www.scopus.com/inward/record.url?scp=54649083616&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=54649083616&partnerID=8YFLogxK
U2 - 10.1023/A:1018317230647
DO - 10.1023/A:1018317230647
M3 - Article
AN - SCOPUS:54649083616
VL - 2
SP - 231
EP - 264
JO - Review of Accounting Studies
JF - Review of Accounting Studies
SN - 1380-6653
IS - 3
ER -