Theoretical Analysis of Cost Controlling: A Mixed Method of ABC and Optimization

Activity-Based Costing (ABC) plays an essential role in cost controlling. In the last step, when the overhead costs are already assigned to cost objects, which usually represent the individual products or services that the firm produces or provides, a comparison is often made between the firm and a benchmarking enterprise in the same industry in order to find an aid of making a decision of reducing cost. At the same time, it is well known out of the cost theory of the microeconomic theory that there must exist the minimum cost if outputs and all input prices are given and the minimum cost is defined as the cost function of the enterprise, while the outputs and inputs prices are variable. Obviously, it exist an inevitable relation between the two kinds of costs from the two methods. That is the two kinds of costs should be equal or approximation in the theoretical meaning. So we can find a new method to control cost. In this paper, we focus on the metric analysis of ABC and propose a mixed method of making use of ABC and the cost function and indirect production function of the enterprise to control cost by comparing with itself only.