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Title: Gearing Multiple Cost Drivers of Activity-Based Costing Into Operating Leverage Model for Better Production and Profit Planning Decisions

Authors: Hamdi Bilici; Ilhan Dalci

Addresses: Author address listing can be found in the "About the Authors" section at the end of the article.

Abstract: In traditional calculations of the operating leverage factor, only volumebased cost drivers are taken into consideration. The aim of this paper is to show how use of the traditional approach to calculating operating leverage factor could lead managers to make irrational or inaccurate profit and production planning decisions. In addition, this paper aims to explain how theoretical assumptions of activity-based costing can be combined with traditional ones to create a new model for calculating operating leverage factor. Furthermore; it will be shown, with the help of a numerical example, how the use of a revised model could lead to better production and profit planning decisions than those produced by traditional models.

Keywords: Activity-based costing; operating leverage; production planning; profit planning; cost drivers.

DOI: 10.1504/JBM.2008.141160

Journal of Business and Management, 2008 Vol.14 No.1, pp.61 - 75

Published online: 05 Sep 2024 *