Reviews the book "Replacement Cost Accounting," by Lawrence Revsine.

This article presents a study on a cooperative formulation of the audit choice problem in auditing in the U.S. Under appropriate conditions, this leads to group level surrogate utility and probability functions such that the audit program chosen should maximize expected surrogate utility. Thus, the auditing problem is conceptually reduced to a Bayesian decision problem. The normative utility function, however, is determined by summing the auditee's and auditor's respective risk tolerances; and the probability function is determined by sampling both individuals' opinions in proportion to their marginal stake in the choice consequence. That is, the appropriate functions are composites and are not, in the general case, those of the auditors.

The economic theory of the firm suggests that a profit-maximizing product price may be determined by equating marginal cost and marginal revenue. Yet recent surveys suggest that most firms use cost-based pricing strategies where product costs are determined using absorption costing. Lere [1986] has drawn upon the economic theory of the firm, as well as extensive work on heuristic decision processes, to develop an empirically testable theory of product pricing based on accounting costs. This paper reports the results of an experiment in which Lere's theory was empirically tested.

Perception of Accuracy, Information value, Information systems, Decision making