Abstract ABSTRACT: Choices of accounting techniques, as well as evaluations of accounting numbers, are based in part upon a knowledge of the relative profit patterns associated with alternative techniques. It is generally understood that inflation accounting models change profit patterns, and the general effects of changes from historical cost accounting to various inflation accounting models have been analyzed. In addition to these general effects, however, there are specific effects due to the interactions of conventional accounting techniques (such as LIFO and FIFO) and specific inflation accounting models. This study analyzes the interaction effects of conventional inventory accounting methods and several inflation accounting models to demonstrate that these effects can produce significant and non-intuitive changes in relative profit patterns among alternative accounting techniques.

Abstract The article presents the author's reply to Professor R.M. Piper's comments on his paper "A Note on the Joint Variance." Piper raises the question of whether the three-variance method should be taught at all. The value of bringing the joint variance into classroom discussions of variance analysis is twofold. First, there are a number of possible treatments of this variance, and consideration of these alternatives is impossible without its explicit recognition. According to Piper, since the joint variance cannot be controlled by a single manager, it should not be assigned to any single manager. However, such treatment of the joint variance requires its recognition and separation. Thus, Piper himself seems to provide the requested rationalization for the three-variance analysis. The second reason for discussing the joint variance is so that students will recognize that the two-variance method commonly used and taught implicitly treats the joint variance as part of the price variance. This recognition may also help students remember that the multiplier of the price variance is actual quantity while the multiplier of the quantity variance is standard price, as opposed to alternative combinations.

Abstract Present value depreciation has been explored in the literature as a means of reconciling the conflict between the internal rate of return of capital budgeting models (IRR) and the return on investment computed from financial statement data (ROI). Accounting accruals of cash flows confound the use of present value depreciation for this purpose, and a number of writers have suggested ways of recording accruals that yield to IRR-ROI consistency. This paper examines further the problems created by accounting accruals. The analysis shows that with the accruals required by the complete disaggregation of a project's net cash flows, IRR-ROI consistency often may be obtainable only at the cost of producing individual account balances that lack suitable economic interpretations.

Abstract The article focuses on joint variance in cost accounting. A number of recent cost accounting texts discuss a three-variance standard cost analysis consisting of a pure price variance, a pure quantity variance and a joint variance, which is due to the interaction of price and quantity differentials. The explicit treatment of the joint variance facilitates understanding of variance analysis generally; and is particularly useful in explaining why, in a two-variance analysis, the quantity or usage variance usually is based on standard price and the price or spending variance usually is based on actual quantity. Conditions, which produce a favorable or unfavorable joint variance, are not as apparent as with the other variances; and students often have difficulty with this point. Purposes of the paper note are to list these conditions for the joint variance and to present a graphical analysis, which can be useful in demonstrating relationships involved. Since the relationship between the joint variance and the price and quantity variances is multiplicative, the sign of the joint variance is independent of magnitudes of the price and quantity variances.

Abstract In this article, the author presents a reply to the criticism of his study by researcher Thomas R. Dyckman, which discussed effects of restating financial statements for price-level changes. Dyckman has asserted that the null hypotheses tested in the author's study were false by definition, and therefore the tests performed were trivial. The author argues that this simply is not true. The null hypotheses tested were simulated investment decisions made in a given contest are the same whether based on historical-cost financial statements, current-value financial statements, or a combination of both types of statements; and these decisions, if different, are no "better" when based on any one of the information sets than when based on the other information sets. A considerable portion of Dyckman's comments concern the problems arising from the use of students in a laboratory situation. The limitations arising from these conditions are well known and are adequately acknowledged in the author's study.

Abstract This article presents comments on an article describing a very useful algebraic teaching aid to explain the differences between the direct costing and full-absorption costing models, written by Don T. DeCoster and Kavasseri V. Ramanathan and published in the October 1973 issue of the journal "The Accounting Review." The article introduced students to break-even analysis under absorption costing, which in turn provides additional insights into the underlying assumptions of conventional break-even analysis. As DeCoster and Ramanathan observe,the difference between income under absorption costing and income under direct costing is equal to the change in the amount of fixed overhead in inventory. DeCoster and Ramanathan's paper demonstrates to the students that the difference in income between absorption costing and direct costing is due to a change in the amount of fixed overhead in inventory and is not due to the presence of a volume variance. This analysis can be used to show students that, although most discussions of conventional accounting concepts assume absorption costing, conventional break-even analysis is based on the direct costing concept.

Abstract This article presents information on an experiment designed to test the usefulness of an alternative accounting model to one group of users, investors in common stock. The particular model tested calls for general price-level adjustments as well as restatement of accounts to current replacement costs. Subjects were given financial statements of actual companies and were asked to specify a holding period of one, two, or three years and then select the firm which they felt would produce the highest rate of return to the investor during this period. The subjects could also indicate that the company selected would be the same regardless of whether the holding period was one, two, or three years. In addition, subjects were asked to express a measure of the confidence they had in their choices and to place a hypothetical value on the price of the companies stocks. The results were then analyzed considering both the company and the holding period selected to see if subjects using current-cost financial statements made different and better decisions than those using only historical cost financial statements.

Abstract Presents the findings of the study designed to provide evidence on the nature of relearning curves. Study design; Functional forms of learning and relearning curve equations; Application of relearning curve equations to data; Relationship between forgetting and model choice; Tests of predictive ability.