Knowledge that Transforms

Abstract The article presents information on new concepts on direct costing. Direct cost is defined as the cost of materials used, labor employed and the expenses, which would not have been incurred but for the production of this output. One of the problems of direct costing arises in the handling of costs which are in part fixed and in part variable with volume. These semi-variable costs acquire their dual nature for one or both of two reasons. Cost classifications generally used in accounting are either based upon the object for which the expenditure was made or upon the function performed. For example, indirect labor usually contains the cost of maintaining a minimum organization necessary to keep the plant ready to operate. This cost is essentially fixed. Indirect labor also includes costs beyond this minimum amount which vary with volume. Direct costing's approach to income measurement is to deduct from sales dollars the direct costs of producing the articles sold and the direct selling expense. The result is the marginal contribution toward fixed manufacturing, general selling, and administrative expense. This method immediately reveals the effect of an increase or decrease in sales volume which is not necessarily evident when fixed charges are deferred as inventory costs.

Abstract The article presents notes by the author on various considerations for making product combination decisions. There are many accounting techniques and concepts-direct costing, break-even analysis and the contribution margin concept which are pertinent to the problem of product combinations. These concepts certainly furnish a starting place in making managerial decisions, however, each of them is quite incomplete in itself. In the development of a model for product combinations which might utilize accounting data, one starting point is to examine the literature of economics. Marginal analysis, as used by the economist, can be applied to the problem of the best combination of products. A correct knowledge of joint and by-product costs is that they serve as a means of regulating production. Although in many cases it is quite difficult to control the quantity of joint products and by-products manufactured, a decision can be made as to whether or not additional labor and materials are to be expended on the newly created joint products and by-products.

Abstract The waste accounting system for a company should separate avoidable waste from unavoidable waste costs, relate the units and cost of avoidable waste with its causes, allocate unavoidable waste costs to the current period and to future periods, and provide the data necessary for reports on waste costs for management.

Abstract A heated controversy is continually waged over the relationship of depreciation to the rate base. Difficult and controversial as is the issue for large and typical utilities, it is especially troublesome for small utilities, and the literature is noticeably lacking in this field. To help clarify objective thinking along these lines, it is proposed to take, as an illustration, a utility with only one plant and to enunciate the principles applicable to small and large organizations as well. This article presents a discussion of the method of determining the size and type of the rate base, comments on how to arrive at the rate of return equitable to all parties, on what part depreciation plays in the accounts and in the rate base and on some elementary aspects of utility financial structure as they relate to the topic. What seems to be a logical program has been brought to the front as all the various phases of the subject have been considered. It is not to be expected that the controversy will die down, but, nevertheless, it was essential to face all the issues squarely and not to avoid even the most controversial aspects of the whole question. The seriousness of inflation as it reaches out to touch utility regulation cannot be overemphasized.

Abstract The author comments on the article "Accounting and Reporting Standards for Corporate Financial Statements-1957 Revision," by George J. Staubus in the January 1958 issue of the periodical "The Accounting Review." The article states that "Distinguishing between monetary assets and non-monetary assets paves the way for several possible desirable developments in accounting practice." But, no hint is given of the nature of these developments which are so possible and so desirable. Mr. Staubus seemed to go to considerable length in praising the committee for absurdities of which it might fairly plead innocent. With regard to "equities," the committee shows a remarkable unwillingness to use plain words and Mr. Staubus plunges even deeper into the twilight of involved and obscure wordiness. Both seem loath to admit that the liabilities of an enterprise are merely the debts that a court will, at need, enforce against the enterprise. A major weakness of the committee report is that it virtually ignores the legal framework. The committee has accomplished miracles of round-about generalization in avoiding the fundamental admission that one major purpose of accounting is the rendering of a report of stewardship by managers to owners. Mr. Staubus rightly criticizes the committee for its indirect approach to the problem of defining the audience to which accounting reports are addressed.

Abstract The article presents a survey of accounting policies and practices of sixty-one oil companies in the U.S. in dealing with costs of acquiring and developing oil and gas properties. The study revealed inconsistency in the industry and in some cases apparent disregard for financial accounting principles. The wide variations among companies in accounting for similar transactions are classed by individual practices regarded by its' proponents as being the correct one. The article points out some specific examples of unwarranted inconsistencies within the industry in accounting for leasehold, exploration and development costs. It also presents an outline some of the basic points that must be considered in selecting from the various optional practices a proper accounting treatment for most situations arising in the petroleum producing business. Each oil producer places emphasis on some one consideration, which determines the company's accounting policies and principles. However omnipotent this one consideration may be, though, the firm cannot completely ignore other factors that are also of prime importance. Five of these factors are federal income tax considerations, practicality and simplicity, conservatism, consistency and theoretical correctness.

Reviews the book "The Accounting," by Bruce Marshall.

Reviews the book "Business Reports: Investigation and Presentation," by Chester Reed Anderson, Alta Gwinn Saunders and Francis William Weeks.

Reviews the book "Shortened C.P.A. Problems," by Hilary H. Sax.

Abstract The article presents observations of the author on a break-even Chart. The author believes that less emphasis should be placed on the specific break-even point and the attention should be on the probable profit or loss results of alternative courses of action. Break-even points are not necessary in arriving at intelligent decisions which involve cost-volume-profit relationships. Break-even points do exist and for this reason, it may be of academic interest to know what they are. But if they can be used, it is suggested that there is almost invariably a better approach to the problem. The author suggests that Break-even charts should be accompanied with detailed budgets and used with considerable caution only when the assumptions underlying the charts are thoroughly understood. Of more importance, however, is the placing of emphasis in planning on the relative profitability of alternative courses of action rather than the break-even point. The author concludes that to compute a break-even point, recognition of whether or not a knowledge of the point is pertinent to a decision faced by management and if it is pertinent, in what way is required.