Knowledge that Transforms

Abstract The article presents views of the author on the article "Selling and Administration Expense Analysis As a Basis for Cost Reduction." I think that the title should probably have seemed more logical and orthodox than the one adopted. It is quite true that expense analysis has generally had as its object the reduction of costs, it is also quite apparent that cost reduction should object of such analysis. Why then inject this type of analysis as a basis for sales control? Just what do we mean by cost reduction? Is it merely a reduction in size as compared with previous dimensions, or should it be measured in a different way? Is it something that can be considered alone, or must it be studied as a relative thing? Should we think of costs as money and service outlay or as standards of measurement? And if we view them as standards of measurement what do they measure? I know of no cost that is not a measure of performance. In fact, a performance without cost, in business, is quite unthinkable. Performances and costs run along parallel lines. The performance creates the cost, but parallel lines may or may not be of the proper relative lengths. Even in a profitable business, viewed as a whole, where the performance line is naturally longer than the cost line, we have no assurances that either line is of the right length.

Abstract To budget machinery raises many difficult problems. The first problem is to determine the period which the budget should cover. In budgeting the sales and production of a business, the fiscal period, usually a year, is the basis followed. A monthly detailed budget supplements the annual budget. There are several reasons for using the year as the basis for budgeting sales. First, it is the period covered by the profit and loss statement. Second, the year is a comprehensive enough period to include all the seasonal changes, and thus the relation between seasons may be determined. Third, the yearly budget provides a basis by which comparisons of similar periods in different years, or full years may be fairly made. These reason also hold good for the budgeting of production on a yearly basis, productivity depending on the same seasons fluctuation as do sales. In budgeting machinery, however, the fiscal year may not be the logical period. There is no relation between the fiscal year and machinery production.

Reviews the book "American Monetary and Banking Policies," by George W. Dowrie.

Abstract The article presents comments by scholar E.W. McCul on the survey on "Cost Accounting for Distribution by the Manufacturer," conducted by the Department of the Chamber of Commerce of the U.S. in the fall of 1929. The margin between the sales price and the cost of manufacture has frequently been the subject of criticism. This criticism arises from the assumption that costs in the marketing operations are too high. Those who undertake to analyze this statement are immediately confronted with the necessity for defining the phrase too high. How can it be known definitely that a cost is too high, unless there be a basis of cost that is not too high, in short, a basis that may be accepted as standard? A second question naturally follows. How can such a standard be set up, unless there be definite specifications on which it is predicated? The technique of cost accounting for distribution seems not to have reached that state of development that cost accounting for manufacture has reached. For this reason, possibly, knowledge of distribution costs is not as adequate as knowledge of costs of manufacture.

Abstract The purpose of the elementary accounting courses given at the Chicago, Illinois-based University of Illinois is to give the students a thorough knowledge of basic transactions and fundamental procedure. Much of the material given in elementary accounting course can be disregarded when an examination is prepared because it represents routine work. Subjects such as, the classification of accounts, the preparation of short financial statements, adjusting entries, closing of the ledger, and books of original entry are included in the first-semester examination. The second-semester course is devoted more to accounting procedure and so for this reason the final examination given in the second semester may be counted upon to have a large number of difficult journal entries covering a wide variety of transactions. The examination for the second semester may include problems such as requiring adjusting entries, where the amount must be calculated as well as entries formulated, requiring the opening of the books of a corporation, or requiring the changing of a single proprietorship or partnership.

Reviews the book "Corporation Finance," revised and enlarged by Edward S. Mead.

Abstract The classification of costs into constant and variable costs has likewise played a prominent role in price theory. If any particular element of cost be written as a function of volume of production for one enterprise, the function will not hold true in others. If one write the function to express an average relation for all enterprises in an industry for a given period, the function will not be true of an earlier or of a later period. Measurements of unused capacity, in other words, are unstable quantities both with respect to different concerns, different times, and different products. The proliferation of marginal theories both with respect to marginal producers and with respect to cost of producing marginal units have been developed also. But objective criteria whereby may know who are sub-marginal, who are marginal and who are supra-marginal producers are still wanting. Neither do one know whether or not any particular producer's volume stops short of the unit that would have been marginal, or just reaches that point or goes beyond it.

Reviews the book "Economic Rhythm: A Theory of Business Cycles," by Ernst Wagemann.

Abstract The student who understands the purpose of a course and who sees how the course will meet his needs has gone far in preparing himself for the study of that course. It is pertinent, therefore, to ask what benefits may be expected from a study of accounting which will justify the necessary expenditure of time. If it be true that the purpose of education is to fit one for living, how does the study of accounting aid in the realization of this aim? Whether one wishes it or not, most students are compelled to spend a large portion of the available time in providing for the necessities of life. The vocational value of bookkeeping and accounting is accepted without question a it is recognized everywhere that efficiency in the use of such knowledge is of direct value to employers. Accounting, however, does more than equip one to hold a mere routine job. Simple record making often leads to more important positions for those who can see beyond boundaries of their first job and who can make use of their experience and opportunities. Accounting provides the background for advancement as it enables one to see how his work fits into the work of other departments. It is not necessary to be a bookkeeper or a public accountant in order to make use of training in accountancy. The subject furnishes one method of learning about the industrial organization of present society.

Reviews the book "Rudiments of Business Finance," by Edward Sherwood Mead and Karl W.H. Schols.