On the Determinants of Measurement Error in Time-Driven Costing

Although employees' time estimates are used extensively for costing purposes, they are prone to measurement error. In an experimental setting, we research how measurement error in time estimates varies with: (1) the level of aggregation in the definition of costing system activities (aggregated or disaggregated); (2) task coherence (the extent to which the activities that require time estimates present themselves coherently or incoherently); and (3) when notice is given that time estimates will be required (in advance or after the fact), that is, whether participants know that time estimates will be required before they perform the activities. We also test on response mode (estimates in percentages or absolute time units). The results suggest an important trade‐off between the level of aggregation and measurement error: increasing aggregation in the definition of activities leads to lower measurement error. Also, advance notification reduces measurement error, especially in settings with aggregated activi...

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