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When Noise Matters - The Effects of Random Measurement Errors in Costing Systems

Kai G. Mertens

出版	SSRN, 2020
URL	http://books.google.com.hk/books?id=ZPrzzgEACAAJ&hl=&source=gbs_api

註釋

Although all types of accounting numbers are in theory prone to noise, the concept receives verylittle attention in cost accounting. Motivated by its potentially detrimental consequences fordecision making, we develop a numerical experiment that investigates how random measurementerrors propagate through costing systems toward product costs and the extent to which this noisedisturbs managers' belief updating. Our results show that product costs can have substantial noise,even with just a few random measurement errors in the costing system. Specifically, we identifythe rule of thumb that more (or less) expensive products are more (or less) prone to noise. Whileincreasing the sophistication of costing systems can initially reduce noise, it cannot fully eliminatenoise. Given this persistence of noise, we show that noisy cost information results in an asymmetricbelief updating pattern, where manager's belief revisions take longer for positive than for negativecost variances.