The Impact of SFAS No 151 on the Cost Structure Decisions

  • 戴 瑋瑩

Student thesis: Master's Thesis

Abstract

The objective of this study is to explore whether SFAS No 151 has an impact on firms’ cost structure decisions characterized in terms of cost rigidity and cost stickiness Issued in November 2004 SFAS No 151 “Inventory Costs ” has amended the guidance in ARB No 43 Chapter 4 “Inventory Pricing ” to clarify the accounting for abnormal amounts of idle facility expense freight handling costs and wasted materials SFAS No 151 requires firms to use normal capacity as the allocation base for fixed manufacturing overhead and to recognize those unused capacity as expenses in the income statement accelerating the recognition of fixed production overheads as expenses in the income statement In order to investigate the issue underlying SFAS No 151 all manufacturing firms listed in the U S (SIC Codes 2000-3999) from the Compustat North America database during the sample period of year 2000 to 2015 (excluding the grey area from year 2005 to 2010 so as to prevent bias observations) are include as observations The empirical results suggest that the enforcement of SFAS No 151 does affect firms’ cost structure decisions in a long run In other words the influence of SFAS No 151 on cost rigidity is negative on average and such effect is more pronounced for firms with higher PPE and diminishes with the increase in a firm’s sales growth rate However I find no evidence that the enforcement of SFAS No 151 affects cost stickiness neither on average nor for the firms with higher PPE which may result from the estimated stickiness based on a short-term measurement thus may not capture the long-term structural adjusting effect Additional tests indicate that the main results of SFAS No 151 on cost rigidity are robust with regard to controlling for an even longer-term structural change and considering the potential effect of the shrink demand in markets after financial crisis
Date of Award2016 Jul 21
Original languageEnglish
SupervisorChaur-Shiuh Young (Supervisor)

Cite this

The Impact of SFAS No 151 on the Cost Structure Decisions
瑋瑩, 戴. (Author). 2016 Jul 21

Student thesis: Master's Thesis