Reviewed by Adolph Matz The Wharton School University of PennsyIvania (Emeritus)

This two part bibliography is a companion volume to Accounting for Common Costs, an historical review of the origins and reasons for the allocation of overhead and other common or joint costs.

In the Introduction the author points out that no existing histories of cost accounting are accompanied by a comprehensive bibliography which provides the raw material for studies of that kind. The author believes that A. L. Prickett’s Classified Cost Accounting Bibliography, Indiana Business Study No. 29 (Bloomington: The School of Business, Indiana University, 1946) is the most complete, but tends to emphasize the two decades immediately prior to 1943.

The Table of Contents of the two parts of this bibliography depicts the compiler’s aim to enlarge the field of study by examining more than 130 different journals and nearly 400 books; the total number of references is in the vicinity of two thousand. The journals are classified as accounting, engineering, economic and other journals. More than a third of all the references listed are accompanied by annotations or classified extracts. The extracts chosen were those which appeared to be important to the compiler’s view with the hope that they would faithfully portray the content of the article or book concerned. The journals are all of the English-speaking world. A few foreign authors appear in translation.

The two volumes are over 1,000 pages long with a bibliography that starts with articles published about the middle of the 19th century. As a journal (e.g., The Accountant, London: Gee & Co.) is examined, the compiler travels through all the issues available and lists the articles at random. No distinction is made as to topic. At first, this method is disturbing, but the author escapes any criticism when at the end of the second volume the Index of Subjects not only lists the titles but also refers to the articles with the aid of the numbers in which they appear within the four classifications. This Index reveals an astonishing number of articles dealing so many years ago with topics that have been discussed, argued, disputed, and rejected in these 100 years. Any researcher will be pleased to have such an aid at his command. For example, the topic of allocation is in 15 categories, and allocation methods lists no less than 94 articles. It might not be advisable to cite all other topics but it is interesting to discover the following: costs for control; costs for decision making; costing for pricing; depreciation; interest—a cost of production; interest—not a cost of production; inventory valuation; pricing; standard costs; transfer prices; variances; and numerous individual manufacturing cost accounting systems.

Closely allied with the multitude of topics dealt with are the opinions and suggestions made by these early writers. The reviewer was astonished by some of their approaches and believes that a few excerpts from these articles will prove the point: In 1878, Thomas Battersley wrote: “in the above business it is necessary to know the prime cost of the manufactures in detail, and the next profit realized, as similar classes of work have to be undertaken and present prices are based on previous data of prime cost . . . while the system of bookkeeping registers the facts of direct and indirect expenses, the system of prime cost takes such data and exhausts them completely and systematically upon the manufactures in detail.

The purpose of cost accounting is stated by Garcke & Fells (1887) “to know the cost of each individual article produced, but equally so to ascertain the cost of any particular part, or of any particular process of manufacture. Localization of cost should be carried as far as possible, so that the varying rates of realizable profit on parts may be known, and the pressure to minimize cost of production be applied in the right direction.

C. E. Knoeppel (1911) discusses the importance of cost allocations stating “that in indirect cost we have an element not capable of being handled so easily, for while there is absolutely no question regarding the advisability of apportioning this element, part to produce on the basis of tonnage and part on the basis of direct labor, there may be considerable questions regarding the advisability of apportioning the various elements which made up this subdivision according to the manner outlined. . . . In considering the handling of commercial cost, all will agree that some means must be provided for taking care of it—that it is not a cost capable of direct charging and must therefore be classed with the apportionable.” However, Knoeppel is “of the firm opinion that the points brought out logically point to “Commercial Cost” apportionment to production on the basis of “Direct Labor,” as being right and proper.

Frank E. Webner’s book on Factory Costs for Cost Accountants and Factory Managers (1911) clearly “identifies cost accounting as associated with, or a necessary condition for scientific management; discusses opposition to introduction of cost systems by management foremen, labor and unions in terms which indicate concern with scientific management.” For the allocation of overhead the author believes that “the best method for distribution is that which minimizes as far as practicable the amount of indirect costs to be diffused on an arbitrary basis—the method which charges the greatest amount of so-called ‘indirect’ expense directly to the product to which it really belongs.” He also advocates “a general uniformity of practice as between different establishments in respect to ex-pense charges to production costs. As one of the consequences of this lack of uniformity, concerns manufacturing similar lines of product cannot compare costs of production intelligently, and in fact fail dismally when they attempt to do so, because their respective costing charges are not on the same basis . . . a condition which leads to puzzling and unwarranted variations in quotations, some-times very perplexing to competitors, and occasionally very disastrous to the quoting ‘concern.

Benjamin Franklin wrote in 1912 that “there are so many theories of expense distribution, possibly, not a little due to the fact there is no positively right one, but nevertheless the necessity for theory exists. But the theory must be a practical one.” Regarding standards, he thought that “the ability to master this point (that costs vary from time to time’) and to figure estimates or production of costs from a standard under varying conditions gauges the comprehension or the meaning and value of practical costs. . . . A product’s true cost is not what it is produced for in good times, in bad times, or the first time, but what it can be produced for in the ordinary average routine of shop practice.”

In 1912 L W. Rawson, discussing foundry cost data and the problem of transfer-prices believes that “whenever the foundry is run in connection with a machine shop, the accounts should be kept entirely separate and castings charged to the shop at fixed prices, just as if they were purchased from the outside.”
Roland Henry published several articles (1897-1898) on the subject of Cost-Keeping Methods in Machine Shop and Foundry. Of interest is this first reference to Responsibility Accounting. “The first aim of the shop manager as superintendent who is immediately responsible for the cost of manufactured articles produced is always directed to the reduction of labor-cost, not because the labor cost is the one element which can be reduced. The expense account is not commonly under the control of the shop superintendent but is determined by the general policy of the establishment.

The contribution margin is introduced by Morrell W. Gaines (1905) by stating that “direct expense per unit subtracted from direct receipts per unit gives the direct net revenue per unit, or net contribution per unit towards all those expenses which are outside of the sphere of influence of the action, and which are with respect to it just as much ‘fixed charges’ as are those special charges which are ‘fixed’ or invariable, with respect to all choices of action alike.

A. E. Outerbridge published in March 1900 an article entitled, “The Policy of Secretiveness in Industrial Works,” explaining that “English visitors to American industrial establishments have frequently expressed their astonishment at the freedom of access gen-erally accorded foreigners … it is not . . . true that secrecy is, ac-cording to the generally accepted European idea, the key to success in manufacturing. It is not true, moreover, that this system tends to preserve and perpetuate methods and machines which have elsewhere been discarded as obsolete.” In 1904 an Editorial points to the Secrecy article and is inclined “to think that manufacturers have themselves to blame for the backward state of Costing Accounts. It is only within quite recent years that many manufacturers have so far got over their old-fashioned prejudices as to allow professional accountants access to their private books; and their Cost Accounts—which from their point of view, represent the most private books of all they have kept, and in many cases still keep, to themselves till the last.”

In conclusion, the reviewer wishes to point out that the quotations cited here represent only a minute number of similar ideas ex-pressed over a period of almost fifty years by many authors. None of these authors was ever cited as the innovator or originator of a definite philosophy, technique, form or procedure in the field of cost accounting. Many ideas were advanced yet none was immediately accepted as a fundamental axiom. Today’s cost accounting thoughts and practices are the result of academicians and practitioners who have combined early efforts with recent developments to create an acceptable management tool. Mr. M. C. Wells’ work is admirable since it truly affords a comprehensive picture of the origins and development of cost accounting.