Knowledge that Transforms

The article presents a rejoinder to a discussion on a previous article written by the author on the topic, joint cost analysis as an aid to management. The author believes that if the assumption that each dollar is equally profitable is to be true at all times, then the total cost of a joint product must, proportionately, never exceed the total cost of any other joint product, individual sales values being the basis for comparison. In this case the total cost of product A is calculated via the sales value method, as being $2,400,000. This figure is certainly proportional to the respective sales values, but it is not a true total, the separate processing costs of A alone amount to $2,800,000. This refute the suggestion that each dollar invested is equally profitable. The author also argues, that it is impossible to arrive at an individual profit, because each of a series of joint products is based upon the fact that a joint cost is an expenditure incurred in the production of a series of products, all of which must be processed or none.

Reviews the book "Business Practices, Trade Position and Competition," by Oswald Khauth.

Reviews the book "Introduction to American Business," by Ferdinard F. Mauser and David J. Schwartz.

Management reports have traditionally been considered an internal problem for each individual firm. The basic problem in top management accounting reports revolves around communication. In designing management reports, if the job is to be done right, the accountant must put himself in the position of the operating executive and determine what financial information is desirable and in what form it will be most useable. The members of the Board of Directors, and the operating management of the functional operating divisions that form the operating and financial policies of the business, may not be trained accountants. The usefulness of management reports is dependent in part on the personal taste of the individuals and individual preferences, but it is also dependent in part on the training and working habits of each group of individuals who may, in the past, have influenced the manner and the extent to which management personnel currently uses financial or other management reports. The lines of communication need to be clear and open between operating management and the Board.

Believing that financial statements could not serve managerial, tax and regulatory purposes well unless they were adjusted for price changes, accountants have, particularly during the last quarter century, been anxious to employ replacement cost in the calculation of income. On the other hand, they have been reluctant to depart from the original monetary outlay for assets, that is, from cost incurred. The compromise has been to present replacement cost so that it appeared to adhere to cost incurred. The last-in first-out, or LIFO, method of inventory pricing is a good example. The LIFO implies a departure from cost incurred in favor of replacement cost or current cost. Nevertheless, the departure has been accomplished in such a manner that students of inventory accounting are apparently convinced that no departure from cost incurred is involved. The contrast between the conventional first-in first-out, or FIFO, calculation of cost of sales and the LIFO calculation has been discussed in this article with an example.

Reviews the book "Accounts From Incomplete Records," by John G. Simpkins.

Reviews the book "Encyclopedia of Accounting Systems," edited by Robert I. Williams and Lillian Doris.

Reviews the book "Business Forecasting in Practice: Principles and Cases," edited by Adolph G. Abramson and Russell H. Mack.

In this article the author discusses the cost concept for control process. He explains the background of deliberations that led to the adoption of the framework. He mentions the examination of various types of cost constructions used for control purposes and the contents of control process. He explains the three groups of control concepts which are, communication of information about approved plans, motivation of people and the reporting of performance. Explaining the concept of communication, he mentions that approved budget is the end result of a planning process and a communication device which tells each unit of an organization about what the management expects it to do during the budget period. He illustrates costs as a motivating device with an example and the possibilities and implications involved in each possibility of the concept. He mentions briefly the points which focus on the limitations of cost as a motivating device. He explains cost as a basis for reporting and appraising as a paradox with concepts relevant to the area.

Reviews the book "Accounting for Community Chests and United Funds."