What question did this study set out to answer?

The research aims to evaluate the accuracy of reciprocal cost allocation methods for estimating marginal costs in service departments, particularly under uncertainty.

March 18, 2026The Accounting Review

Estimating the Marginal Cost of Operating a Service Department When Reciprocal Services Exist.

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Authors

RLRichard A. LambertJames Madison University DLDavid F. LarckerNorthwestern University

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Implication

Analysis reveals that reciprocal cost allocation rates are biased estimates of expected marginal costs, suggesting the need for improved estimation methods.

Key Points

The research aims to evaluate the accuracy of reciprocal cost allocation methods for estimating marginal costs in service departments, particularly under uncertainty.
Analyzed general production functions for service departments
Incorporated uncertainty into cost allocation models
Examined three econometric procedures for cost estimation
Conducted simulations to compare standard deviations of estimators
Reciprocal cost allocation rates are biased and do not equal expected marginal costs
Estimation methods showed larger standard deviations than reciprocal method rates
No single method is universally superior in providing cost estimators

Cite This Study

Lambert et al. (1989) studied this question.

synapsesocial.com/papers/69ba426d4e9516ffd37a2b15 https://doi.org/10.2308/tar-4492183

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Implication

Analysis reveals that reciprocal cost allocation rates are biased estimates of expected marginal costs, suggesting the need for improved estimation methods.

Estimating the Marginal Cost of Operating a Service Department When Reciprocal Services Exist.

Discussion

Member takes

Implication

Key Points

Cite This Study

Estimating the Marginal Cost of Operating a Service Department When Reciprocal Services Exist.

Discussion

Member takes

Implication

Key Points

Cite This Study

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