Abstract ABSTRACT: Control over cost processes can be exercised either via Markovian control, i.e., in the traditional manner by investigating the process whenever the reported cost exceeds a fixed critical cost, or via Bayesian control, i.e., by using the reported cost to update the probability of the process being out of control at the time of the next cost signal, and investigating the process whenever such posterior probability exceeds a fixed critical value. This paper compares the long-run expected cost per period of the best Markovian control (Dittman-Prakash policy) vis-a-vis the optimal control (the best Bayesian policy) for a wide range of cost situations. It is observed that Markovian control performs almost as well as the optimal control unless the in-control cost has at least a moderately large coefficient of intrusion (or relative uncertainty) and a substantially greater dispersion than the out-of-control cost. Sensitivity analysis shows that this observation is reasonably robust with respect to changes in the values of other parameters.

Abstract The article develops a frame of reference which emphasizes the fact that a firm, in functioning as a system within the parameters determined by its environment, itself functions as an element in a higher level system, namely, the economy, wherein it interacts and interrelates with other elements and so takes part in the process of determining the very parameters within which it must function internally. The first section of the article briefly presents the informational viewpoint and lays the groundwork for looking at the firm and its embedding in the economy from this viewpoint. The second section describes some of the salient informational interdependencies both internal to the firm and between the firm and its environment, highlighting thereby the role of accounting information as seen from the proposed frame of reference. Information plays an essential role in the functioning of purposeful, decision-making elements and flows of information among such elements are basic to all social systems.

Abstract Reviews the book 'Management Control Systems: Text, Cases and Readings,' Revised Edition, by Robert N. Anthony, John Dearden and Richard F. Vancil.

Abstract ABSTRACT: Claims about the benefits to be derived from dichotomizing income into current operating profit (COP) and holding gain (HG) are examined in this article. Separability of an asset from the risk of change in its price is shown to be a necessary and sufficient condition for separate evaluation of the operating and holding decisions with respect to the asset. When risk is separable, the appropriate breakdown of income into operating and holding components is defined. When the risk is not separable, no meaningful breakdown is possible. Other claims for a COP-HG dichotomy, e.g., the usefulness of COP in making various business decisions and interfirm and interperiod comparisons, are shown to be unjustified. In the absence of benefits, the direct cost of compiling data positively unattractive. The arbitrary nature of this dichotomy is illustrated through the construction of an equally defensible alternative.

Cost control, Cost variance, Cost process, Markovian control transition matrix