The Fundamental Structure of ABC for the Decision-Making

Abstract

Recently, There are a lot of research findings that analyze the fundamental structure of costing. Among other things, Noreen (1991), which derived three conditions under which ABC systems provide the fundamental data of relevant costs to make product pricing and drop decisions, have a powerful influence on later researches.

In this paper, in order to provide the fundamental data to calculate differential costs for the decision-making, the three conditions derived by Noreen (1991) are analyzed at full length. For that purpose, first, the derivation process of those conditions is demonstrated, and the contribution of Noreen is clarified. Then, based on the acknowledgment, the natures of each condition are analyzed, and the interrelationship among conditions is demonstrated. Moreover, in association with each condition, it is demonstrated fully that ABC describes any variables affected by the decision-making in relation to cost drivers.