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Product Costing Systems: Finding

the Right Approach
Joseph G. Fisher and Kip Krumwiede

M
any firms use cost of improving the
product cost- Many product costing methods and systems exist, cost system becomes
ing information but having the right costing system for a given a strategic investment
to value inventory for situation can be difficult. This article identifies four rather than an unfavor-
financial reporting pur- key questions to answer and points out the advan- able spending vari-
poses. However, having tages and disadvantages of various cost systems ance. While managers
timely, relevant cost to find the right balance of convenience, correct- realize the problems
information is essen- ness, and implementation costs in a product cost- caused by relying on
tial for profitability flawed cost informa-
ing system. Nestlé, for example, discovered that
analysis and strategic tion, it is challenging
planning. Consider good product management, aided by better cost to identify the appro-
the following story. A systems, can pay major dividends. priate cost system.
few years ago, after © 2012 Wiley Periodicals, Inc. Complicating the task
implementing a more is the fact that different
detailed costing system, strategic decisions call
Nestlé SA Chief Executive Peter for different product costs. The
Brabeck made an unexpected Resource Planning (ERP) sys- purpose of this article is to help
and alarming discovery: His tem led Nestlé to jettison weaker companies determine the right
company was producing 130,000 brands, consolidate product offer- product cost system approach.
variations of its various brands, ings, and make significant adjust- First, we discuss why choosing
and 30 percent weren’t making ments in strategic direction. As the right costing approach is
money.1 Excessive focus on vari- Nestlé discovered, selecting the important. Second, we discuss
able costs and spare capacity correct product costing system for four key questions that must be
led to the conclusion that many strategic decisions can be chal- answered when selecting a cost-
new products were “profitable” lenging but is essential in guiding ing approach and the associated
and long-term winners. Nestlé’s firm strategy. The wrong system options. Lastly, we describe
margins were lower than com- can lead to faulty strategic deci- actions to take to achieve a
petitors, however, which strongly sions with disastrous results. proper fit.
suggested that these seemingly We have found that many
“profitable” products were actu- firms underinvest in their prod- Why Product Cost Systems
ally decreasing firm profit. Care- uct costing systems. But if Matter
ful consideration of the cost and improvements in product cost
profitability analysis provided by accuracy would lead to differ- So why do companies
its new sophisticated Enterprise ent decision outcomes, then the need a costing system? First,

© 2012 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).
DOI 10.1002/jcaf.21752 43
44 The Journal of Corporate Accounting & Finance  /  March/April 2012
generally accepted accounting
principles (GAAP) and Inter-
national Accounting Standards
(IAS) require the determination
of the cost of goods sold or ser-
vices performed for financial
reporting. Financial accounting,
however, does not require a high
level of accuracy or relevance
for product costing—the method
simply needs to be systematic
and reasonable. Second, prof-
itability assessment is a key
component of strategic analysis.
Many important strategic deci-
sions are made at the product-
line level. For almost any firm
producing a large and diverse set
of products in different facili-
ties and countries (e.g., Nestlé),
product profitability helps
guide product portfolio
decisions. Third, product
costing systems can help
in cost and operational
control.
Unfortunately, given
diverse demands on cost
information, there is no
single system that meets
every reporting and stra-
tegic need. Additionally,
different operational set-
tings call for different
costing approaches. A system
that is appropriate for a Nestlé
Purina pet food factory making
a few flavors of dog food would
not be appropriate for a Nestlé
confectionery plant making doz-
ens of different candies. While
this fact may be unsettling for
managers who desire certainty, it
also relieves the pressure to find
the one and only cost number or
system. Quite simply, the single
best product cost system for
all possible purposes does not
exist. Selecting a costing system
and philosophy requires a care-
ful consideration of costs and
benefits.
In our experience, we have
found that most companies
DOI 10.1002/jcaf © 2012 Wiley Periodicals, Inc.
desire more accurate product
costing systems but have trouble
justifying the cost. We have also
found, however, the cost infor-
mation philosophy to be quite
different in Europe. One Ger-
man controller of a company
with a very detailed costing
system expressed a commonly
held view when he said, “How
can you not have this level of
detail?” The benefits of a supe-
rior costing system are real but
hard to quantify in return on
investment (ROI) calculations,
and implementation costs can
seem onerous. In general, it is
difficult to quantify all benefits
prior to system implementation.
Improving a cost system should
Quite simply, the single best product
cost system for all possible purposes
does not exist. Selecting a costing
system and philosophy requires a
careful consideration of costs and
benefits.
be approached as a strategic
investment.
Assessing Your Current
System
So how do you know if you
have a satisfactory system? We
recommend assessing your cur-
rent system against three dimen-
sions:
• Convenience: how conve-
nient is it to get the cost
information needed?
• Correctness: are the current
product costs reasonably
accurate?
• Costs of implementation: are
the costs of implementing
and maintaining the current
system reasonable?
There are some “red flags”
to look for when assessing your
system. Do competitors’ prices
appear to be unrealistically
low? Does it take weeks to do
a special cost study to get the
information needed for a stra-
tegic decision? Do marketing
managers want to continue prod-
ucts that show high profits in the
accounting reports but are com-
plex to produce? Do operational
managers use their own cost
systems for product decisions?
If the current system shows any
of these warning signs, or falls
short on one or more of the
dimensions, then a new
cost system may be appro-
priate. When selecting a
new product cost approach,
there are four key questions
that must be addressed.
Answering these questions
will guide the selection
process.
Four Key Questions in
Product Cost Design
Unfortunately, the myriad
approaches to product costing
and choices available can inhibit
a systematic design approach. In
selecting a product cost system,
a firm needs to answer four key
questions:
1. Which costs should be
included in product cost?
2. At what level of detail
should we track direct
product costs?
3. How do we organize indirect
product costs?
4. How do we allocate indirect
costs to products?
Addressing these questions
will help guide system selec-
tion. Understanding the various
 The Journal of Corporate Accounting & Finance  /  March/April 2012 45

Which Costs Should Be

Included in Product Costs?
Exhibit 1
The first question relates
to product cost definition. As
Four Major Costing Continuums a starting point, full absorption
costing includes all manufactur-
1. Which costs should be included in product cost? ing costs as product costs; it is
most commonly used in practice,
Low High
and it is mandated by GAAP for
Throughput Variable Full Absorption Life-Cycle
financial reporting. However, it
Costing Costing Costing Costing may be insufficient since it only
includes certain costs: direct
2. At what level of detail should we track direct product costs? materials, direct labor, and some
reasonable allocation of vari-
Job Resource able and fixed overhead. Other
direct costs are not included.
Job Operation Value Stream Process Resource
Costing Costing Costing Costing Consumption
For example, a 2 percent tariff
Accounting on every candy bar sold is as
much a cost of selling a product
3. How do we organize indirect product costs?
as the ingredients that went into
Simple Complex it. Yet this cost would not be
included in full absorption cost.
Plantwide Department Time-Driven Activity-Based Detailed Nor would absorption costing
Cost Pool Cost Pools ABC Cost Pools Cost Centers
include other relevant nonmanu-
facturing costs—such as R&D,
4. How do we allocate indirect costs to products? sales, support, and distribution—
Simple Complex in product costs. Including full
manufacturing costs can lead to
Volume- Transaction-Based Duration-Based Intensity- unnecessary inventory buildup
Based Drivers Drivers Based since fixed overhead (i.e., capac-
Drivers Drivers
ity) costs are capitalized in
inventory and not immediately
expensed on the income state-
options available can help options available for each of the ment. In addition, this costing
identify and address the most four key questions. Next, we dis- approach mixes variable and
critical needs. Exhibit 1 illus- cuss each question and options fixed costs, which makes it dif-
trates some of the more common in more detail. ficult to determine cost behavior
when making product decisions.
The question of what to
Exhibit 2 include in product cost is chal-
lenging, since there are many
different cost categories that may
Levels of Product Costing Completeness be considered. Exhibit 2 presents
several cost models along with
typical cost inclusions. Any com-
Types of Cost bination of costs, however, may
Direct materials Throughput
Direct labor Costing Variable Full be included in product costs.
Costing Absorption Throughput costing includes
Variable factory overhead
Costing
Fixed factory overhead Life-Cycle only direct materials in product
Nonfactory costs (sales, admin, distribution) Costing costs. This model (which dis-
R&D, design, customer service, disposal courages inventory buildup since
fixed costs cannot be capitalized
into the inventory account) is

© 2012 Wiley Periodicals, Inc. DOI 10.1002/jcaf

46 The Journal of Corporate Accounting & Finance  /  March/April 2012
commonly used in just-in-time
production environments. On
the other hand, this methodol-
ogy does not measure full costs
and would be inappropriate for
making many strategic decisions
(e.g., cost-based pricing).
Variable costing includes all
variable manufacturing costs.
This methodology is more
appropriate when variable costs
are significant and a key compo-
nent of total cost. Although not
allowed for GAAP due to imme-
diate expensing of fixed over-
head, the use of variable costing
can discourage buildup of inven-
tories since fixed production
costs are expensed instead of
being included in inventory. The
separation of fixed and variable
costs permits construction
of a “contribution margin”
income statement. Contri-
bution margin equals sales
minus all variable costs.
Focusing on the contribu-
tion margin may be rele-
vant for short-term strategic
decision making since fixed
overhead does not change
significantly with changes
in short-term production
volume.
More inclusive methods
include full absorption costing
discussed earlier and life-cycle
costing. Life-cycle costing
includes all production-related
costs as well as nonproduction
costs such as sales, administra-
tion, R&D, customer service, and
disposal costs. These “upstream”
and “downstream” costs are part
of the overall value chain and are
increasingly being recognized as
costs that need to be taken into
account when making strategic
decisions. In fact, in many firms,
these costs are more significant
than manufacturing cost. Ignor-
ing these costs can result in
understated product costs for
strategic decision analysis.
DOI 10.1002/jcaf © 2012 Wiley Periodicals, Inc.
It is important to emphasize
that one product cost definition
cannot meet all costing needs.
For example, for inventory con-
trol purposes, a firm may select
throughput costing, while for
pricing decisions the firm may
use a more inclusive definition.
Exhibit 3 provides a list of typi-
cal product cost definitions along
with associated pros and cons.
Another issue relating to
product cost is how to address
idle capacity cost. Idle capacity
in one period may be a necessary
investment in another period to
meet demand. Including these
costs as part of product costs,
however, leads to the risk of a
“downward demand spiral.” This
term refers to decreasing demand
Focusing on the contribution mar-
gin may be relevant for short-term
strategic decision making since fixed
overhead does not change signifi-
cantly with changes in short-term
production volume.
leading to allocating these costs
to fewer products, which leads
to higher cost allocations and
prices, which in turn leads to
further decreased demand, and
so forth. Many firms attempt to
report these idle capacity costs
separately in order to minimize
the impact of short-run capacity
issues on product cost.2
At What Level of Detail Should
We Track Direct Product
Costs?
The second important ques-
tion to answer is how to track
direct product costs. As Exhibit 1
illustrates, one end of the spec-
trum tracks costs by job (or
product). Job costing is most
appropriate when each job or
product is unique, but it can lead
to unnecessary recordkeeping for
costs that are common to all jobs.
At the other end of the spec-
trum is resource consumption
accounting (RCA), where costs
are tracked at the individual
resource cost center level for
a large number of cost centers
(i.e., work areas).3 RCA requires
tracking several cost categories
for each cost center, separating
fixed and variable costs, and
developing a cost rate for the
variable costs that can be used
to charge costs to the output. A
flexible budget is developed for
each cost center based on the
actual activity volume.
Fixed and variable costs
continue to be separated
as costs are rolled up to
the final product cost. This
level of detail allows firms
using RCA to achieve a
high level of cost accuracy
and control. This approach
is appropriate for batch
processing and when cost
assignment drivers are
quantifiable, but it can be
expensive to implement.
Other methods between the two
extremes include process cost-
ing, operation costing, and value
stream costing. Process costing
tracks costs at the process or
department level and assumes
product uniformity. When prod-
ucts have certain unique costs
(e.g., different materials) but
essentially go through the same
process, then a hybrid approach,
called operation costing, is
appropriate.4 Value stream cost-
ing is often associated with the
Lean Accounting philosophy and
tends to be used with throughput
costing. Value stream costing
tracks revenues and costs by
value stream (i.e., major flows
 The Journal of Corporate Accounting & Finance  /  March/April 2012 47

Exhibit 3

Product Cost Definitions

Definition Pr o s Cons

Throughput costing
Includes only direct
materials as product
costs
Treats all other costs
as period costs
Variable costing
Classifies cost by
behavior (e.g.,
variable or fixed)
Treats variable
manufacturing costs
as product costs
Treats all other costs
as period costs
Full absorption costing
Includes all materials,
labor, and
manufacturing
overhead as product
costs
Treats all other
nonmanufacturing
costs as period costs
Life-cycle costing
Includes all
production-related
costs plus upstream
and downstream costs
as product costs (e.g.,
R&D, customer
service, and disposal
costs)
Consistent with just- May lead to strategic
in-time and errors (e.g.,
discourages underpricing
inventory buildup products)
Relatively simple Not allowed under
GAAP
Allows cost-volume- May lead to strategic
profit (break-even) errors (e.g.,
analysis underpricing
products)
Consistent with a
contribution margin Not allowed under
approach GAAP
Relatively simple May require extra
training
Required for GAAP Does not include
and IAS nonmanufacturing
costs
Commonly used and
understood Can motivate
unnecessary
inventory buildup
May treat fixed
production costs as
variable
Recognizes overall Downstream costs
value-chain costs often not known
Best fit for long-term May treat all value
product decisions stream costs as
variable

of value-added activities that go
into delivering specific prod-
ucts and services to customers).
Sustaining costs are separated
from value stream costs to mini-
mize arbitrary allocations. Value
stream costing works well in
tandem with a Lean manufactur-
ing strategy and simplifies the
accounting process by not track-
ing costs for individual jobs or
processes. On the down side, it is
more challenging to apply in sit-
uations where common resources
are used to support multiple
value streams.
Exhibit 4 provides a brief
description and list of pros and
cons for different approaches to
tracking direct product costs.
How Do We Organize Indirect
Product Costs?
The question of how to
handle indirect costs is a key
challenge for product costing. By

© 2012 Wiley Periodicals, Inc. DOI 10.1002/jcaf

48 The Journal of Corporate Accounting & Finance  /  March/April 2012

Exhibit 4

Costing Approaches Relating to Direct Cost Detail

Cost Approach Pros Cons

Job costing (JC)

Each order is Best captures the May lead to
separately costed unique aspects of unnecessary tracking
Requires separate each job for costs that are
record keeping for common
Generally most
each job or product accurate costing Expensive
system
Process costing (PC)
Tracks costs by Typically the easiest Does not capture
department and and least costly unique costs
computes average cost method
for all units for a time
Works well in
period
environments where
individual units are
indistinguishable
Operation costing (OC)
Tracks unique costs Captures the unique Less accurate than
by order (e.g., costs of each job JC for costs that differ
materials) like JC by job
Cost-effective for
Tracks common costs costs that are More effort required
by department and common for each job than PC
computes average cost or unit
across all units

Value stream costing

Tracks revenues and Supports Lean Less cost control over
costs by value stream manufacturing individual processes
Shows sustaining philosophy
Not as effective when
costs separate from Simplifies the company uses
value stream costs accounting process common resources
(minimizes arbitrary
Saves time by not
allocations)
having to track costs
for individual jobs or
processes

Resource consumption
accounting (RCA)
Models how resources
are used by outputs
Responsibility for Typically requires
Separates costs into costs lies with cost expensive ERP
variable and fixed center managers system
elements for a large (strong cost control)
Very detailed—can be
number of cost
Highly accurate difficult to understand
centers
product cost
Typically most
Uses flexible information for short-
complex method
budgeting at the cost term decisions
center level

DOI 10.1002/jcaf © 2012 Wiley Periodicals, Inc.

The Journal of Corporate Accounting & Finance  /  March/April 2012 49
definition, these costs cannot be
easily traced to the product (or
cost object). Exhibit 1 illustrates
a continuum of methods to track
indirect costs from simple to
more complex methods (see
Exhibit 5 for a list of pros and
cons for each method). His-
torically, most businesses have
chosen plantwide or department-
based accumulation approaches
in which overhead costs are accu-
mulated into either a single cost
pool or department-based cost
pools. Departmental cost pools
are commonly used with opera-
tion and process costing methods.
Although simple plantwide or
department-based cost pools are
used extensively, prior research
suggests that these approaches
can lead to highly distorted
product costs due to the
inclusion of only one cost
driver. To address this
issue, activity-based costing
(ABC) organizes indirect
costs by activity and can
result in more accurate
product costs. ABC, how-
ever, has been criticized
due to inherent complexity.
Challenges include the dif-
ficulty in collecting activ-
ity data, allocation challenges,
and high implementation costs.
Time-driven ABC (TDABC) has
been developed in response to
these issues.5 TDABC attempts
to simplify the ABC process by
using time as the cost driver and
thus skipping the activity defini-
tion stage and surveying task.
Instead, just two parameters need
to be estimated: (1) a capacity
cost rate for each department and
(2) the typical capacity usage for
each type of transaction. By using
a department’s total productive
time available as the denomina-
tor when computing the capac-
ity cost rate, TDABC allows
the firm to compute the cost of
unused capacity. One downside of
© 2012 Wiley Periodicals, Inc. DOI 10.1002/jcaf
TDABC is the need to estimate
the time to carry out each type of
transaction and the assumption
of constant time requirements.
In addition, resource costs that
are not correlated with time (e.g.,
level of complexity, space, etc.)
may be handled more easily by
conventional ABC methods.
The most complex method
to organize indirect costs is to
use detailed cost centers. Often
used with RCA, this method
tracks costs at the individual cost
center (i.e., work area) level by
various categories (e.g., variable
vs. fixed, supplies, labor, etc.).
These costs are “direct” to the
cost center and then charged to
the product using the variable
cost rate. Tracking these costs at
Although simple plantwide or
department-based cost pools are used
extensively, prior research suggests
that these approaches can lead to
highly distorted product costs due to
the inclusion of only one cost driver.
this disaggregated level allows
for greater accuracy but at the
expense of higher implementa-
tion and maintenance costs.
How Do We Allocate Indirect
Costs to Products?
Closely related to deciding
how to track indirect costs is
choosing the most appropriate
basis for allocating these costs to
the product. The goal is to find
the best “cost driver” for each
cost pool that approximates the
cause-and-effect linkage between
the costs and the product. As
Exhibit 1 shows, the simplest
bases are related to volume (e.g.,
units produced)—typically used
with plantwide and department-
based cost pools. Unfortunately,
many cost categories are not cor-
related with production volume.
In these cases, transaction-based
cost drivers are more appropri-
ate. Examples of transaction cost
drivers include number of set-
ups, purchase orders, and design
changes, which are commonly
used with ABC.
In other situations, dura-
tion or intensity cost drivers are
appropriate drivers. TDABC uses
duration drivers that measure the
time required for a transaction.
For example, assume it takes lon-
ger to set up the melting pots for
a batch of organic chocolate bars
than for nonorganic bars. The
chocolate factory may want to use
setup hours rather than the
number of setups to allo-
cate setup costs. Intensity
drivers are more complex
since they seek to measure
the actual resources used by
an activity.6 For instance,
some products may be par-
ticularly difficult to set up
because they require spe-
cially trained workers and
quality control personnel.
Instead of treating all setup
hours alike, hours requiring dif-
ferent human resources would be
tracked separately. Use of inten-
sity drivers typically results in
more accurate product costs but is
expensive to implement.
Taking Action
Developing the right product
costing system is not an easy or
trivial process. In order to find
the right fit, first assess your
current system based on conve-
nience, correctness, and costs of
implementation. Also look for
warning signs that your current
product cost system is flawed.
If the current system seems to
be consistently falling short,
50 The Journal of Corporate Accounting & Finance  /  March/April 2012

Exhibit 5

Costing Approaches Relating to Organizing Indirect Costs

Cost Approach Pros C o ns

Plantwide cost pool

All indirect costs are Simplest method Generally least
accumulated into a accurate assignment
Works well if all
single cost pool
products consume Can lead to highly
indirect costs at the distorted costs since
same rate all indirect costs
assumed to be driven
by one driver
Departmental cost pools
Indirect costs are Simple method Often not very
accumulated into a accurate assignment
Recognizes
separate cost pool for of overhead costs to
differences in
each department products
overhead costs
among departments
Generally more
accurate than
plantwide method
Activity-based costing (ABC)
Assigns indirect Generally most Needs to use JC, PC,
(overhead) costs to accurate assignment or OC to account for
activity cost pools of overhead costs to direct costs
Next assigns activity products
Complex to set up
costs to cost objects Can use cost drivers and maintain
using appropriate cost and activity cost
drivers and rates rates to help manage
business
Time-driven ABC
Indirect costs are Takes less time and Must estimate time to
accumulated into a effort than ABC carry out each type of
separate cost pool for (does not require transaction
each department accumulating costs
Not as accurate for
Uses time as the cost by activity or tracking
resource costs that
driver for all resources various cost driver
are not driven by time
within a given data)
(e.g., complexity,
department Allows the firm to space)
Multiplies single cost compute the cost of
rate by the time unused capacity
required for each type
of transaction
Detailed cost centers
Indirect costs tracked Cost center manager Typically requires
at the individual cost has responsibility for expensive ERP
center (work area) indirect costs system
level
Higher granularity Very detailed—can be
Costs tracked by and accuracy than difficult to understand
category (e.g., other cost
Requires most effort
variable vs. fixed, approaches
to set up and maintain
supplies, labor, etc.)
Costs are charged to
the output using a
variable cost rate for
each cost center

DOI 10.1002/jcaf © 2012 Wiley Periodicals, Inc.

The Journal of Corporate Accounting & Finance  /  March/April 2012 51

consider the four key questions
and different approaches avail-
able discussed in this article.
Many of the approaches included
in this article fit well as a cost-
ing package. For example, typi-
cal pairings include: throughput
costing and value stream costing;
department-based cost pools
with process or operation cost-
ing; plantwide cost pools with
volume-based drivers; ABC with
transaction drivers; TDABC with
duration drivers; and RCA with
detailed cost centers.
Beyond the issues discussed
in this article, product costing
system change can result in chal-
lenging behavioral and political
issues. Even if improvements
to the cost systems are in order,
there is often resistance due to
financial and time constraints.
To help “sell” a cost system
improvement initiative to upper
management, try identifying
some recent specific strategic or
operational decisions in which
cost information was used to
help make the decision. Show
how more accurate or complete
information might have altered
the outcome of the decision. It is
hard to quantify the benefits of
improvements to a costing sys-
tem, but a firm can often quan-
tify the benefits for specific deci-
sions and use them as examples.
In addition, employees whose
measured performance is nega-
tively affected by the new prod-
uct cost system may be wary of
system change. Being cognizant
of potential behavioral issues is
key in system implementation.
Back to Nestlé’s situation,
a careful examination of prod-
uct costing systems resulted
in a major system overhaul.
New information led to major
changes in strategic direction.
For instance, CEO Peter Brabeck
was surprised to discover that
it cost more to make flavored
frozen treats in the United States
than in Europe. In response,
Nestlé retrained US factory
workers to feed the machines
faster, leading to a 33 percent
drop in the cost of ice pops the
following year. Nestlé discovered
that good product management,
aided by better cost systems, can
pay major dividends.
NOTES
1. Ball, D. (2007, July 23). After buying
binge, Nestle goes on a diet. Wall Street
Journal, p. A1.
2. See Kaplan, R., & Anderson, S.
(2007, March/April). The innovation
of time-driven activity-based costing.
Cost Management, 21(2), 5–15. See also
Kren, L. (2008). Using activity-based
management for cost control. Journal
of Performance Management, 21(2),
18–28.
3. See White, L. (2009, May/June).
Resource consumption accounting:
Manager-focused management account-
ing. The Journal of Corporate Accounting
& Finance, 20(4), 63–77; Krumwiede,
K., & Suessmair, A. (2007). Getting
down to specifics on RCA. Strategic
Finance, 88(12), 50–55; and Mackie, B.
(2006). Merging GPK and ABC on the
road to RCA. Strategic Finance, 88(5),
33–39.
4. See Pryor, T. (2010, January/February).
A financial thermometer for lean opera-
tions. Journal of Corporate Accounting
& Finance, 21(2), 81–91; and Kennedy,
F., & Brewer, P. (2005). Lean accounting:
What’s it all about? Strategic Finance,
87(5), 27–34.
5. Kaplan, R., & Anderson, S. (2007).
The innovation of time-driven activity-
based costing. Cost Management,
pp. 5–15. See also Öker, F., & Adigüzel,
H. (2010). Time-driven activity-
based costing: An implementation in
a manufacturing company. Journal
of Corporate Accounting & Finance,
22(1), 75–92.
6. For a more complete discussion of dif-
ferent types of cost drivers, see Kaplan,
R., & Cooper, R. (1998). Cost and effect:
Using integrated cost systems to drive
profitability and performance. Boston,
MA: Harvard Business School Press;
pp. 95–98.

Joseph G. Fisher is the Harry C. Sauvain Chair of the Department of Accounting in the Kelley School of
Business at Indiana University in Bloomington, Indiana. Kip Krumwiede is an associate professor in the
Department of Accounting in the Robins School of Business at the University of Richmond in Richmond,
Virginia.

© 2012 Wiley Periodicals, Inc. DOI 10.1002/jcaf

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