Optimizing the Selection of Cost Drivers in Activity-Based Costing Using Quasi-Knapsack Structure


  •  Saleem Ramadan    

Abstract

In this article, we are presenting a model for optimizing the selection of cost drivers in activity-based costing such that the optimal set of cost drivers will minimize the sum of the absolute product unit price deviations and will keep the budget under the intended amount utilizing a quasi-Knapsack structure. Comparative analysis from two benchmark problems showed the effectiveness of the proposed model. Moreover, the comparative analysis showed that categorizing the cost drivers into four operational expenses levels as suggested by cooper and Kaplan (1991) did not always lead to a better solution. Furthermore, the study showed that the budget is not the only determinant that determines the best set of cost drivers, the way that the expenses of the removed cost drivers are handled is also a determinant for the effectiveness of the model.



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