Reviewed by M. C. Wells
University of Sydney
This monograph contains a comprehensive and readable account of the development of various theories of production costs by prominent German writers. For those of us who are incompetent in any but our own language it is a long overdue introduction to a highly developed and rather specialized field. Yet, after reading it, instead of any feeling of satisfaction at having comprehended some new and complex notions, I was left with a feeling of frustration. Not be-cause of Professor Schoenfeld’s work. On the contrary, one can only be envious of his ability to digest and translate abstract theoretical notions in more than one language.
No, the frustration arises because we are introduced to various theories which seem, somehow, never to reach a conclusion. Perhaps this reaction is because I too am guilty of the pragmatism which Schoenfeld finds so common in the United States. And the practical effects of the various theories discussed in the monograph are not easy to discern. There appears to be strong support, for example, for the inclusion of imputed costs in cost calculations for decision making (pp. 18-24) but just as strong support for their exclusion from published profit and loss accounts (pp. 28-29). But why are profit and loss accounts published if no one is going to use them to make decisions?
Similarly, but more importantly, Schoenfeld describes various approaches to the definition and determination of product costs. The relationship of costs to market determined prices is stressed throughout as is the purpose of cost determination:
German scholars generally recognize the fact that, at least in theory, a market connection should be maintained. Monetary cost value should at the same time allow an adequate and up-to-date efficiency evaluation (Wirhschaft-lichkeitsrechnung) (p. 15).
Curiously, the allocation of overhead and service department costs appears to be an essential part of the cost accumulation pro-cess. What is missing is an explanation of how cost allocations satisfy the condition of a market connection, and how they may be used in making an up-to-date efficiency evaluation.
The adoption of conventional allocation procedures is all the more curious when one considers the extent to which the theories Schoenfeld describes are firmly rooted in economic doctrines. The earlier cost theory of Schmalenbach, and more recent work by Mellerowicz, Gutenberg and Heinen would sit more easily in a textbook of economics than cost accounting if they were published in the U.S., Great Britain or Australia, which is indicative of a defect in the thinking extant in those countries and not a criticism of the German scholars. The emphasis given by them to an analysis of the production functions and operational constraints commonly found in industry provides a sound basis for the development, by argument and counter-argument, of a fruitful theory of cost accumulation. But the theories so derived are not extended to the pragmatic level of delineating costs which might or might not be included in regular cost accounting procedures nor do they provide any justification for the allocation of common costs.
The cost theories which emerged from a detailed analysis of real and imagined production functions do, however, illustrate the advantage which that line of development has over the “practical-dogma” approach common in English speaking countries. For whereas the latter leads, almost inevitably, to a hotch-potch of unrelated and frequently conflicting ideas and methods (how else can we explain the coexistence of the criterion of objectivity and subjectively allocated costs, or the common emphasis on unit product costs despite their irrelevance for decision making and control) the former at least provides a clearly defined starting point for debate. Wherever a theory is seen to be deficient, its proponents or adversaries can identify the assumptions on which it is based and test their validity as well as that of the logical inferences drawn from them. That this is potentially a far more productive mode of reasoning than the pragmatists’ criterion of “does it work?” is clearly evident from Section Ill of this monograph.
Of particular interest to accounting historians will be Schoen-feld’s description of the origins of various cost theories, the background of the German Uniform Chart of Accounts and his evaluation of European theory development. Throughout that development, the close connection between cost accounting and economics is clearly drawn.
Schoenfeld has adopted the role of reporter, not advocate. His monograph is a work to be taken seriously and studied closely by all who profess an interest in cost accounting practices and theories. Although the emphasis on German literature is somewhat narrower than the title implies, the English language literature has been considerably enhanced by this addition.
(Vol. 2, No. 2, p. 5, 1975)
