search query: @author Wagenhofer, A. / total: 11
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| Author: | Wagenhofer, A. |
| Title: | The value of distorting overhead cost allocations in an agency setting |
| Journal: | Management Accounting Research
1996 : DEC, VOL. 7:4, p. 367-385 |
| Index terms: | COST ALLOCATION INCENTIVES PERFORMANCE APPRAISAL |
| Language: | eng |
| Abstract: | This paper shows a strict demand for suitably chosen inaccurate overhead cost allocations in an agency model in which a profit centre manager is in charge of production cost containment and pricing decisions. Given exogenous restrictions on the compensation scheme, the use of distorted overhead costs by transforming the performance measure into 'accounting profit', helps calibrate incentives for the manager. The paper derives conditions for under- or overallocation of overhead costs to products. Generally , underallocation is preferable if the riskness of quantity is strongly positively related with price and unit cost of a product, or if the product is relatively more price-sensitive. |
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