Knowledge that Transforms

Abstract This article discusses two linear programming models used in capital budgeting. Many real-world optimization problems have the property that optimal decisions must be stated in terms of integers or whole numbers. This is the case, for example, in capital budgeting models where the integer 0 means that one does not undertake a project and the integer 1 indicates that one does. A model for many such problems is that of integer programming. The two models include a linear programming model without integer restrictions and the other the same linear programming model but with integer restrictions on the decision variables. The former, which is an approximation, is referred as the LP model, and the latter is referred as the IP model. There is no way to round an LP optimal solution to get an optimal solution to the IP model.

Abstract This article presents information on accounting education in the U.S. Accounting is not a process that is concerned exclusively with passing the Certified Public Accountants (CPA) examination. Yet, many professors understandably take great interest in their students' success with the exam. Avoiding the old argument of accounting education versus CPA examination preparation, the paper reviews "CPA examination preview clinics," programs through which accounting educators can help CPA candidates without "teaching the exam" in their classes. At the same time, participation in CPA preview clinics is another small way of bringing accounting practitioners and educators together. The purpose of the paper is to outline what is being done by the various state societies of CPA to aid candidates in their preparation for the Uniform CPA Examination and, hopefully, to encourage college and university accounting instructors to take part in programs sponsored in their areas. Passing the CPA examination is not an easy task. The need that candidates have for guidance and instruction in preparing for the CPA examination is being met in an organized manner in a few states through the "CPA preview clinic."

Abstract The article discusses a new emphasis for introductory accounting instruction. The purpose of this note is to present a proposed outline for a two semester introductory accounting course. The outline reflects beliefs regarding the direction in which introductory accounting education should and will evolve in the near future. It is hoped that this paper will stimulate discussion and research directed at improving the introductory accounting course, and in particular will encourage experimentation with new approaches in the development of teaching materials for the course. Basically it is felt that the outline provides a broader perspective of accounting, and a more balanced emphasis on breadth and depth, to the beginning student of accounting. People are critical of many, if not most, contemporary introductory accounting courses for providing too narrow a perspective by means of an overemphasis on the procedures and techniques of accounting. Accountants certainly do not advocate that procedures and techniques are not an integral part of introductory accounting. However, the outline does entail a reduction of emphasis on procedures and techniques, which is counterbalanced by an increase in emphasis on such matters as normative as well as positive views of the accounting function, the role of accounting in economic and social processes, an historical perspective, and an exposure to the variety of activities and dimensions which are encompassed by the accounting discipline, including not only financial and managerial accounting, but also auditing, information systems, taxation, quantitative methods, behavioral accounting and accounting theory.

Abstract The article presents information on several developments related to accounting. Arthur H. Hoverland has resigned to accept the position of Professor and Chairman of the Department of Administration at California State College, San Bernardino. David C. Burns, from Indiana University, has joined the faculty as Assistant Professor. Richard Larson joined the accounting faculty in September as Associate Professor. William T. Stevens is on leave to the American University in Cairo, Egypt for two years starting Summer, 1971. Walter B. Meigs is on special leave during the Fall Semester. William F. Crum will be on sabbatical during the Spring Semester. New additions to the staff are: William K. Harper, Visiting Associate Professor; Franklin D. Ewing-Chow and Michael Merz, Lecturers. Harold Sollenberger has returned to Michigan State University after a one-year appointment as Visiting Associate Professor of Accounting.

Abstract Reviews the book "DR. Scott Memorial Lectures in Accountancy," vol. 3, edited by Robert C. Culpepper.

Abstract The article presents information on linear programming shadow prices using graphical analysis. Many students have difficulty in interpreting shadow prices as provided in the more complex simplex solution. A graphical approach will allow students to be exposed to shadow prices at an early stage in the discussion of linear programming accounting applications. To approach the idea of shadow prices, the value of additional machine hours and materials should be considered, i.e., the worth of additional machine hours and materials. If the firm had more machine time and/or materials, profits could be increased by utilizing more of each. Therefore, the "economic cost" of a constraint is the additional profit that would be generated if a constraint were relaxed. This cost is sometimes referred to as the "shadow price" of a constraint. A shadow price is simply the economic value of an additional unit of a constraint. The shadow price, as well as the range over which the price is valid, is easily shown using graphical analysis.

Abstract Reviews the book "An Examination of Cut-Off Rates for Capital Expenditure Analysis Under Capital Rationing," by Richard D. Morris.

Abstract The article is a comment on an article "Matrix Theory and Cost Allocation," by researchers T.H. Williams and C.H. Griffin, published in the July 1964 issue of the journal "The Accounting Review." According to the author, Williams and Griffin were the first to select this topic as an illustration of the application of matrix algebra to accounting problems. The model presented by Williams and Griffin is a matrix formulation of the popular simultaneous equations method of past years. It was pointed out that the aggregate cost of service departments after allocation in the Williams and Griffin model is more than the combined direct cost before allocation. The scope of this paper has two dimensions: first, to attempt to clarify the matrix algebra approaches that have already been posed and place them in perspective; second, to present a new matrix model of reciprocal service cost allocation and relate it to those previously presented. It would be assumed that each service department will have some of its cost allocated to some of the producing departments.

Abstract This article presents information on financial accounting. The net realizable value of an asset is defined as the maximum net amount, which can be realized from the disposal of that asset within a short period of time. Net amount is defined as the selling price less disposition costs including tax effects discounted to the point of measurement. Basically, the issue is whether or not society is better served by the valuation of assets for public reporting at the cash they command upon sale or at the cash required to have them available for use by the firm. It might appear that under pure and perfect competition, with equally well-informed actors, the gap between the net realizable value and the replacement cost would be minimal and could be ignored. This is not the case due to the existence of frictions in the market place, such as commissions, transportation costs and the like. A stronger argument favoring net realizable value is based upon the frequent reference by statement users to a rate of return computation. The measurement of assets influences both elements of this computation since this measurement affects the denominator directly and the numerator through the depreciation charge.

Abstract This article is concerned with the systematic arrangement of concepts, for which tentative definitions and provisional symbols are needed to communicate. Classification is the primary intellectual activity of man, older even than girlwatching. Quantification is secondary. The major task in setting up any kind of taxonomy is that of selecting appropriate symbols, giving them precise and usable definitions, and securing the consensus of the group which is to use them. Classes may be nominal only, but the taxons must be ordered, so that an alpha class includes two or more beta classes. The usual treatment of "class and subclass" is not sufficient because the ordered levels of generality are essential to a rigorous and complete classification. One notable exception to the general neglect and the conspicuous absence of innovative inquiry by accountants into the classification problem is the work in accounting theory by Eldon Hendriksen. His classification of "approaches to accounting theory" is a novel contribution to literature.