The Accounting Review Vol. 38 No. 1 1963
DIRECT, RELEVANT OR ABSORPTION COSTING?
Abstract
This paper will show direct costing, as a product costing and inventory valuation technique, to be unsatisfactory on three grounds: (1) the weakness of historical cost as a basis of asset valuation, (2) the lack of foundation for the fixed cost assumption, (3) the failure of direct costing to distinguish between wastage and utilization of productive capacity during a reporting period. Essence of cost accounting is cost classification. Some common bases of cost classification are responsibility, object of expenditure, product or service tuned out, and behavior relative to volume. These bases of classification contribute information for answering common questions regarding costs in any enterprise. One of the most widely misused terms in accounting is cost. It is one thing to say that an asset is measured by its cost; to say that an asset is a cost, or vice versa, is a distinctly different pronouncement. Adjusted historical cost means the original amount of money paid for the asset adjusted for the change in the size of the measuring unit between the acquisition date and the statement date.
- DOI
- 10.2308/tar-7101083
- Volume
- 38
- Issue
- 1
- Pages
- 64-74
- Language
- en
- Sources
- openalex crossref