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Vollmers, G. L. 1996. Academic cost accounting from 1920-1950: Alive and well. Journal of Management Accounting Research (8): 181-199.

Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida

History & Development Main Page | Relevance Lost Main Page

The purpose of this paper is to challenge one of the claims by Johnson and Kaplan in Relevance Lost: The Rise and Fall of Management Accounting that academic cost accounting was driven by financial accounting during the period from 1929 to 1950 and stagnated after 1925. Vollmers uses textbooks published during this period as evidence and particularly two key topics that appeared in these textbooks.

The first topic is the concept of the "department" that had a distinctive meaning in cost accounting. A department was defined as part of a business where a similar group of products or services are located, or where similar machines are operated, or like kinds of work are performed. The emphasis was on homogeneity. The homogeneous department was required for the development of meaningful cost information. Without homogeneous departments, cross subsidies would occur and unit costs, budgets and standards would be useless. Vollmers discusses the development of the two stage cost allocation procedure and how indirect costs were distributed to departments in the first stage using a causal basis such as the number of employees or square footage. In the second stage, labor or machine time was the basis for allocating costs to products. None of the textbooks advocated using a plant wide rate. The textbooks considered the key to reducing overhead cost distortions was the homogeneous department. They also recommended using non-accounting data such as records on individual customers and machine downtime for various decisions.

The second key topic Vollmers discusses is distribution costs. Although financial accounting treats marketing, transportation and billing costs as period costs, these early cost accounting textbooks gave considerable attention to distribution costs and how these costs should be allocated using bases such as number of customer accounts, the number of salesman's calls, number of units ordered, the weight of the products sold. One "maverick" text author even advocated charging distribution costs to inventory and illustrated how this could be accomplished. According to Vollmers, this new textbook emphasis on distribution costing provides one example showing that cost accounting did not stagnate after 1925.

Textbook authors did eventually eliminate the detailed coverage of the departmentalization concept and distribution costing, but this occurred after 1970.

Vollmer's main point is that if these early textbooks had only emphasized developing product costs for external financial reporting, they would not have covered departmentalization and distribution costing, or they would not have covered these topics in such depth. The early textbooks also covered topics such as imputed costs, replacement costs, sunk costs and out-of-pocket costs, and emphasized that the "mere grinding out of figures" was not cost accounting.

The article includes two Appendices as follows:

Appendix A provides a list of the cost accounting textbooks reviewed.

Appendix B includes a table showing sample textbook coverage on selected topics including how each textbook:

1. Defined the purposes of cost accounting (e.g., accurate unit costs, help planning, eliminate waste, provide a basis for selling price etc.).
2. Defined product costs and recommended cost allocations to departments.
3. The primary and secondary objects of cost assignment.
4. Secondary cost allocation bases.
5. Special issues such as standard costs, distribution costs, departmentalization, management reports, and budgeting.

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