T. Ross Archibald, The Return to Straight-Line Depreciation: An Analysis of a Change in Accounting Method, Journal of Accounting Research, Vol. 5, Empirical Research in Accounting: Selected Studies 1967 (1967), pp. 164-180

Book review, Replacement costs, Sale Price, Asset valuation

Linked Loans, Real income accounting, Price level changes, Loans

The concept that corporate investment-growth decisions are constrained by a profit opportunities schedule is central to much of the literature on finance and the theory of the firm. These writings suggest that, for a single firm: (1) the profit opportunities schedule is a decreasing function of investment growth (the slope reflecting, inter alia, competitive conditions); (2) the schedule shifts to the right with changes in national income (except for a firm producing income-inferior goods), and (3) the schedule's position (intercept) at a moment in time reflects a host of factors that are summarized by the term “management.”

This article focuses on the conceptual framework which may prove better than analysis of variance which is considered to be very important in cost accounting. Conceptual framework is better because it distinguishes long-range and short-range factors, demonstrates the weaknesses of existing practices, sharply pinpoints responsibility in relation to the purposes of short-range planning and control and separates the role of physical measures of capacity from the role of valuation of that capacity, and indicates how a contribution-margin or opportunity-cost approach to valuation is superior to a unitized historical-cost approach. Organizations assemble human and physical resources that provide the capacity to produce and sell. These commitments often require heavy expenditures that affect performance over long spans of time. The implications for managers are twofold. First, careful planning. Second, the acquired capacity. Many fixed costs result from capital budgeting decisions, reached after studying the expected impact of these expenditures on operations over a number of years. The choice of a capacity size may be influenced by a combination of two major factors, first provision for seasonal and cyclical fluctuations in demand. Second, Provision for upward trends in demand.