Big data analytics are changing product costing practice in its decision-facilitating role, and have made arbitrary overhead allocation unnecessary. Contracts-to-system applications, which extract cost data directly from contracts without resorting to conventional cost accounting, are key components of emerging practice, and are currently offered by all Big 4 accounting firms to audit and consulting clients. I call this practice contract-based cost analytics (CBCA) and illustrate it with a special order decision scenario. Benefits of CBCA are reductions in cost estimation assumptions, timeliness, intuitive appeal to non-accountants, improved access to unstructured data, improved negotiations regarding cost and sales, outsource-based budgeting, and support for capital budgeting decisions (in addition to short-term scenarios). The biggest obstacle to CBCA is accountants' familiarity with linear cost behavior assumptions. Without such assumptions, CBCA looks very unusual; the point of this paper is that albeit unusual to accountants, not only is CBCA possible, it has begun.
Research Article| January 16 2020
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Philip Beaulieu; Contract-Based Cost Analytics. Journal of Emerging Technologies in Accounting doi: https://doi.org/10.2308/jeta-19-11-22-48
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