Reviewed by Joseph R. Razek University of New Orleans
Before 1970, the prevailing view of management accounting history, as articulated by S. Paul Gardner, A. C. Littleton and Sidney Polard, was that (1) management accounting originated because of the need to value inventories at cost and (2) management accounting, as we know it today, did not develop until the late nineteenth century, when the fixed costs of many industrial concerns became large enough to necessitate considerable attention to accounting allocation procedures. As a result, accounting historians often slighted the internal accounting practices of early business organizations. They tended to believe that since management accounting was merely a peripheral result of the financial reporting process and since accounting was a technical process, which could be studied exclusively in terms of itself, the only sources that they really needed to consult were the published works of accountants.
In his extensive research into the history of management accounting, Professor Johnson has uncovered evidence that refutes the above assumptions. He has found that fully integrated cost accounting systems were in use prior to the 1860’s and that by the second decade of the present century, almost all of the internal accounting practices taught in today’s management accounting courses were employed by many organizations. He has also demonstrated that early management accounting practices developed in order to provide information for the use of managers, rather than just to value inventories. For this contribution to our knowledge of accounting history, Professor Johnson was awarded the prestigeous hourglass award in 1981.
This volume is divided into two sections. The first contains reprints of three articles written by Professor Johnson which are, in essence, case studies of three firms operating between the 1850’s and the 1920’s. These studies successfully trace the development of the internal accounting practices used by most of today’s industrial concerns.
The first article discusses the accounting records used by a New England textile firm, Lyman Mills, in the 1850’s. In this study, Professor Johnson shows that a “modern” cost accounting system was in use at this time. He concludes that the system was used to facilitate the control of internal plant operations, rather than to “evaluate production decisions or to determine the costs and benefits of technological innovations” (p. 12).
In the second article, Professor Johnson demonstrates how the formation of large, integrated industrial firms at the end of the nineteenth and the beginning of the twentieth centuries encouraged the introduction of innovative accounting practices. He does this by means of an examination of how the Dupont Powder Company used its centralized management accounting system, in the early part of this century, to help it plan its longterm development and avoid the internal inefficiencies that sometimes accompany large size.
In the third article, Professor Johnson discusses the development of the management accounting techniques that developed in order to provide both the divisional and the top management of multidivisional organizations data with which to evaluate individual managers’ performance, companywide performance and future company policy. His primary focus is the development of these techniques at General Motors, in the 1920’s, and “the results obtained with them in practice and their alleged shortcomings …” (p. 36).
The second section contains reprints of six articles and papers which interpret the case studies in the first section and examine the views put forth by several accounting historians, as well as scholars in other related fields, as to the role of historical research and research methods in the area of management accounting. Of particular interest to this reviewer was the paper titled “The Search for Gain in Markets and Firms: A Review of the Historical Emergence of Management Accounting Systems,” in which Professor Johnson explores the organizational conditions underlying the emergence of management accounting and how, through certain organizational processes, management accounting affects society.
This volume has a number of uses, both in and out of the classroom. For a course in accounting history, it forms the basis of a module on management accounting. It can also be used in an advanced or graduatelevel course in managerial accounting to provide historical background and an understanding of how the. various management accounting techniques developed, as well as to demonstrate how the examination of a particular organization can be used as a research tool. Finally, it can (and should) be used as a personal reference by persons undertaking research projects in accounting history, as well as those just interested in the development of accounting thought.
