Price elasticity of demand and capacity expansion features in an enhanced ABC product-mix decision model |
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Authors: | Wen-Hsien Tsai Lopin Kuo Thomas W. Lin Yi-Chen Kuo Yu-Shan Shen |
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Affiliation: | 1. Department of Business Administration , National Central University , Jhongli, Taoyuan 320, Taiwan whtsai@mgt.ncu.edu.tw;3. Department of Accounting , TamKang University , Tamsui, Taipei 251, Taiwan;4. Leventhal School of Accounting, Marshall School of Business, University of Southern California , Los Angeles, CA 90089, USA;5. Department of Business Administration , St. John's University , Tamsui, Taipei 251, Taiwan;6. Department of Business Administration , National Central University , Jhongli, Taoyuan 320, Taiwan |
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Abstract: | In recent years, activity-based costing (ABC) has become a popular cost and operations management technique to improve the accuracy of firms’ product or service costs in order to help the firms stay competitive. Since the product-mix decision is an important ABC application, most studies in the ABC literature were generally focused on the effect of ABC analysis on the product-mix decision or product cost calculation. However, these studies usually ignored some important factors, such as: capacity expansions, management's degree of control over resources, purchase discount, and change of product's price. Hence, in this paper, we consider these factors to propose a more general model. This model can help managers to make a product-mix decision and identify excess resources so that managers can redeploy them to optimise resource usage. Furthermore, since previous studies did not consider the impact of price changes on product-mix decisions, this paper also examines the impact of reducing product price with different price elasticity of demand (ε D) on the simulated company's profit. |
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Keywords: | activity-based costing (ABC) price elasticity of demand (εD) capacity expansion theory of constraints (TOC) management's control over resources ability |
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