Journal of Accounting and Economics Vol. 10 No. 3 1988
Relevant costs, congestion and stochasticity in production environments
Abstract
Conventional management accounting principles used to evaluate relevant costs have been developed under the assumption of deterministic manufacturing settings. Manufacturing operations, however, are complex and stochastic. In this paper we examine the impact of stochasticity in the production process on relevant costs based on a dynamic assessment of capacity constraints. We develop a model to analyze the behavior of relevant costs with respect to changes in the expected duration and variability in set-ups and processing. An implication of this analysis is that for profit maximization capacity will exceed expected demand if production rates or demand are stochastic.
- DOI
- 10.1016/0165-4101(88)90002-x
- Volume
- 10
- Issue
- 3
- Pages
- 171-197
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref