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Essays on cognitive and behavioral effects of costing system design

Sophie Maussen (UGent)
(2020)
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Abstract
The cost information provided by costing systems serves two important purposes: (1) providing information for planning and decision making (i.e., decision facilitation), and (2) motivating and monitoring individuals in organizations (i.e., decision influencing). Since different costing system design choices lead to different cost information, costing system designers and managers need to consider each alternative design choice carefully. In particular, they need to understand the consequences of their design choices for both purposes of the information the costing system produces. The three experimental studies included in this dissertation contribute to the understanding of the impact of costing system design on both roles and their interdependence. The first study in this dissertation focuses on the accuracy of time estimates that are used to allocate overhead costs to cost objects. As time estimates are subject to estimation error, they may be a source of measurement error, and, subsequently, result in distortions in product and service costs, which is detrimental for decision making. In particular, this study examines how task interruption resulting from modern work contexts (e.g., multitasking) impacts the accuracy of time estimates and how this effect is moderated by an interactive time estimation process. The results show that although task interruption adds more complexity to time estimation, it is important for managers to understand that by enabling an interactive time estimation process they can offset the detrimental impact of task interruption on time estimation accuracy and, subsequently, enhance the accuracy of their product and service costs. The second study in this dissertation examines whether and how reporting the cost of unused capacity (i.e., capacity reporting) influences managerial honesty. A multi-agent participative budgeting setting is studied and budget slack is used as a measure of dishonesty. Although the costing system is an important underlying mechanism in budgeting, prior research has largely neglected possible effects of costing system design on budget slack. To calculate the cost of used and unused capacity, the costing system relies upon cost allocation input parameters. When these input parameters are not readily available from the ERP system, managers often have to estimate them (e.g., time writing), providing managers with discretion. The results imply that organizations would observe less budget misreporting when time is automatically registered in a system that uses capacity reporting compared to a classical costing system without capacity reporting. However, when cost allocations rely on time estimates, managers should be aware that subordinates’ increased discretion results in increased misreporting when capacity reporting is present. In addition, capacity reporting in the presence of subordinates’ discretion can result in biased cost information, which can hamper decision making. Hence, an important tradeoff between decision facilitation and decision influencing exists in that the simultaneous use of a particular costing system for both purposes harms its efficacy. The third study in this dissertation focuses on a multitask environment in which organizations provide employees with slack resources. The current literature identifies slack resources as either beneficial or dysfunctional. Combining both views, it is studied whether and how the implementation of capacity reporting influences employees’ decisions to consume slack resources opportunistically or to exert effort on alternative tasks that are beneficial for the organization (i.e., extra-role behavior). The results of this real-effort lab experiment show that an endogenous implementation (i.e., by superior) of capacity reporting decreases subordinates’ perceived trust and increases subordinates’ motivation. Subsequently, lower perceived trust results in less extra-role effort and more opportunism while higher motivation results in more extra-role effort and less opportunism. Overall, an endogenous implementation of capacity reporting results in less opportunistic consumption of slack resources and, as such, in higher levels of extra-role effort and performance. In contrast, an exogenous implementation (i.e., randomly assigned by computer) of capacity reporting does not impact extra-role effort, performance, perceived trust, and motivation. Overall, this study shows that the implementation of capacity reporting may have effort-directing effects in addition to the important consequences for decision facilitation, which are often the purpose of implementing this costing system design feature.

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MLA
Maussen, Sophie. Essays on Cognitive and Behavioral Effects of Costing System Design. Universiteit Gent. Faculteit Economie en Bedrijfskunde, 2020.
APA
Maussen, S. (2020). Essays on cognitive and behavioral effects of costing system design. Universiteit Gent. Faculteit Economie en Bedrijfskunde.
Chicago author-date
Maussen, Sophie. 2020. “Essays on Cognitive and Behavioral Effects of Costing System Design.” Universiteit Gent. Faculteit Economie en Bedrijfskunde.
Chicago author-date (all authors)
Maussen, Sophie. 2020. “Essays on Cognitive and Behavioral Effects of Costing System Design.” Universiteit Gent. Faculteit Economie en Bedrijfskunde.
Vancouver
1.
Maussen S. Essays on cognitive and behavioral effects of costing system design. Universiteit Gent. Faculteit Economie en Bedrijfskunde; 2020.
IEEE
[1]
S. Maussen, “Essays on cognitive and behavioral effects of costing system design,” Universiteit Gent. Faculteit Economie en Bedrijfskunde, 2020.
@phdthesis{8668658,
  abstract     = {The cost information provided by costing systems serves two important purposes: (1) providing information for planning and decision making (i.e., decision facilitation), and (2) motivating and monitoring individuals in organizations (i.e., decision influencing). Since different costing system design choices lead to different cost information, costing system designers and managers need to consider each alternative design choice carefully. In particular, they need to understand the consequences of their design choices for both purposes of the information the costing system produces. The three experimental studies included in this dissertation contribute to the understanding of the impact of costing system design on both roles and their interdependence. 

The first study in this dissertation focuses on the accuracy of time estimates that are used to allocate overhead costs to cost objects. As time estimates are subject to estimation error, they may be a source of measurement error, and, subsequently, result in distortions in product and service costs, which is detrimental for decision making. In particular, this study examines how task interruption resulting from modern work contexts (e.g., multitasking) impacts the accuracy of time estimates and how this effect is moderated by an interactive time estimation process. The results show that although task interruption adds more complexity to time estimation, it is important for managers to understand that by enabling an interactive time estimation process they can offset the detrimental impact of task interruption on time estimation accuracy and, subsequently, enhance the accuracy of their product and service costs.

The second study in this dissertation examines whether and how reporting the cost of unused capacity (i.e., capacity reporting) influences managerial honesty. A multi-agent participative budgeting setting is studied and budget slack is used as a measure of dishonesty. Although the costing system is an important underlying mechanism in budgeting, prior research has largely neglected possible effects of costing system design on budget slack. To calculate the cost of used and unused capacity, the costing system relies upon cost allocation input parameters. When these input parameters are not readily available from the ERP system, managers often have to estimate them (e.g., time writing), providing managers with discretion. The results imply that organizations would observe less budget misreporting when time is automatically registered in a system that uses capacity reporting compared to a classical costing system without capacity reporting. However, when cost allocations rely on time estimates, managers should be aware that subordinates’ increased discretion results in increased misreporting when capacity reporting is present. In addition, capacity reporting in the presence of subordinates’ discretion can result in biased cost information, which can hamper decision making. Hence, an important tradeoff between decision facilitation and decision influencing exists in that the simultaneous use of a particular costing system for both purposes harms its efficacy.

The third study in this dissertation focuses on a multitask environment in which organizations provide employees with slack resources. The current literature identifies slack resources as either beneficial or dysfunctional. Combining both views, it is studied whether and how the implementation of capacity reporting influences employees’ decisions to consume slack resources opportunistically or to exert effort on alternative tasks that are beneficial for the organization (i.e., extra-role behavior). The results of this real-effort lab experiment show that an endogenous implementation (i.e., by superior) of capacity reporting decreases subordinates’ perceived trust and increases subordinates’ motivation. Subsequently, lower perceived trust results in less extra-role effort and more opportunism while higher motivation results in more extra-role effort and less opportunism. Overall, an endogenous implementation of capacity reporting results in less opportunistic consumption of slack resources and, as such, in higher levels of extra-role effort and performance. In contrast, an exogenous implementation (i.e., randomly assigned by computer) of capacity reporting does not impact extra-role effort, performance, perceived trust, and motivation. Overall, this study shows that the implementation of capacity reporting may have effort-directing effects in addition to the important consequences for decision facilitation, which are often the purpose of implementing this costing system design feature.},
  author       = {Maussen, Sophie},
  language     = {eng},
  pages        = {XX, 138},
  publisher    = {Universiteit Gent. Faculteit Economie en Bedrijfskunde},
  school       = {Ghent University},
  title        = {Essays on cognitive and behavioral effects of costing system design},
  year         = {2020},
}