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| Author: | Hemmer, T. |
| Title: | Allocations of sunk capacity costs and joint costs in a linear principal-agent model |
| Journal: | Accounting Review
1996 : JUL, VOL. 71:3, p. 419-432 |
| Index terms: | ALLOCATION CAPACITY COSTS |
| Language: | eng |
| Abstract: | Banker and Hughes demonstrate the economic sufficiency of normal activity-based unit cost for optimal pricing decisions. This paper provides an agency parallel to their analysis by examining how, in the presence of capacity costs, the desirable tradeoff between risk-sharing and incentives can be achieved through modification of the performance measures on which the contract is based. Similar to Banker and Hughes (1994), the author finds that the optimal capacity cost allocation is a function only of budgeted volume when capacity can be used to produce a single product. |
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