Estimating input parameters in activity-based costing systems utilizing fuzzy set theory

Activity based costing (ABC) systems are being implemented with the objective of obtaining accurate product and process costing information. Development of an ABC system requires extensive; data collection and analysis. As a result, ABC input data are often estimated which leads to inherent imprecision and uncertainty in these systems. Fuzzy set theory is a body of concepts and techniques that can quantify imprecise and uncertain information. The objective of this research is to develop an input parameter estimation methodology based on fuzzy set theory that will incorporate knowledge concerning inherent data imprecision and uncertainty into ABC systems. This methodology creates a new type of ABC system; a fuzzy activity based costing (FABC) system. FABC systems can provide decision makers with information that is useful for many functions including product and process decisions, quote and budget development, and make-or-buy analyses.; The research methodology is broken into two phases. In the first phase, multiple analytical FABC models were generated to investigate the effects of various factors on FABC systems. These factors include application type (hypothetical and real world), estimator characteristics (confidence and estimation risk tendency), and uncertainty analysis method (fuzzy set theory, interval mathematics and probability through Monte Carlo simulation). The various estimator characteristics, which were represented by distinct input data, do not affect the bottom line results of the FABC models. Based on a cost/benefit analysis of the various uncertainty analysis methods, fuzzy set theory, and Monte Carlo simulation under certain conditions are recommended as efficient methods of incorporating uncertainty into ABC systems. This phase resulted in a preliminary design for FABC system development. During the second phase, two field studies were conducted by developing a FABC system for a pharmaceutical company and a FABC Outsourcing Decision Support: System for an electronic control equipment manufacturer. Compared to standard ABC analysis, both FABC systems were assessed as providing additional and more valuable information that would assist each company in their decision making processes. These empirical analyses provided insight into the practical difficulties and benefits of FABC system development and finalized the FABC system development process.