Allocation of indirect costs among products sometimes yields a paradoxical result that unit cost for each product may increase under one method of allocation and may decrease for each product under another method. The Stalcup Paper Company case illustrate such behaviour of costs at the same, time, provides an accounting example of Simpon’s Reversal Paradox Simpson (1951), which Blyth (1972) discussed in the statistics literature. As with other paradoxes, this cost allocation paradox disappears upon closer scrutiny. This paper examines the properties of allocated costs in order to arrive at an intuitive understanding of the results. The relationship of the cost allocation problem to Simpson’s Paradox and the implications of the analysis for cost control are briefly discussed. Necessary and sufficient condition for occurrence of the Paradox is also given. (This abstract was borrowed from another version of this item.)

Valuation, Exchange valuation set, Cost-benefit analysis, Exchange prices

Inventory valuation, FIFO, LIFO, Tax payments

Shyam Sunder, Relationship between Accounting Changes and Stock Prices: Problems of Measurement and Some Empirical Evidence, Journal of Accounting Research, Vol. 11, Empirical Research in Accounting: Selected Studies 1973 (1973), pp. 1-45

Exchange valuation rules, Accuracy, Asset valuation, Price-level adjusted accounting

Shyam Sunder, Gregory Waymire, Marginal Gains in Accuracy of Valuation from Increasingly Specific Price Indexes: Empirical Evidence for the U.S. Economy, Journal of Accounting Research, Vol. 21, No. 2 (Autumn, 1983), pp. 565-580

Synthesis

Stock market Disciplining, Rational expectations model, Managerial decision making

Charles R. Plott, Shyam Sunder, A Synthesis, Journal of Accounting Research, Vol. 19, Studies on Standardization of Accounting Practices: An Assessment of Alternative Institutional Arrangements (1981), pp. 227-239

We examine the contemporaneous relation between earnings forecast accuracy and recommendation profitability to assess the effectiveness with which analysts translate forecasts into profitable recommendations. We find that, after controlling for expertise, more accurate analysts make more profitable recommendations, albeit only for firms with value‐relevant earnings. Next, we show that conflicts of interest from investment banking activities affect the relation between accuracy and profitability. In the case of buy recommendations, more accurate forecasts are associated with more profitable recommendations only for the nonconflicted analysts. For hold recommendations, higher levels of accuracy are associated with higher levels of profitability for conflicted analysts, provided these recommendations are treated as sells. Finally, we find that regulatory reforms aimed at mitigating analyst conflicts of interest appear to have improved the relation between accuracy and profitability. Specifically, the integrity of buy and hold recommendations has improved and the change is more pronounced for analysts expected to be most conflicted.