A Field Study on the Limitations of Activity-Based Costing When Resources are Provided on a Joint and Indivisible Basis

This paper describes conditions under which both conventional costing and activity-based costing based on an assumed linear relation between costs and activities can yield poor approximations to actual expenditures. Applying a simulation approach to data from a field experiment conducted in a hospital, it is estimated how a change in anesthetics would reduce the demand for nursing services in the recovery room of the hospital's outpatient surgery facility.