Reviewed by Lamont F. Steedle James Madison University
Cost Accounting and Burden Application by Clinton H. Scovell is an appropriate choice for the Arno Press collection, Dimensions of Accounting Theory and Practice. Scovell’s work is a description of the principles and techniques of cost accounting, vintage 1916. Viewing his thoughts and insights from a modern cost accounting perspective shows him to have been well ahead of his time.
Scovell was a Harvardeducated CPA who lectured at Boston University and also had a private consulting practice. His discussions and recommendations are liberally sprinkled with examples, giving the reader not only evidence of his varied experience but also details of specific industrial products and processes of his time.
Scovell opens by recounting the history of the need for sound cost accounting methods. The birth of scientific management and organization of labor led to the need for unit cost data, because managers were involved in price competition and in cost reduction programs without full knowledge of product costs. Scovell’s stated purpose was to examine the elements of cost, define the principles of cost accounting and describe the methods of procedure in developing a cost accounting practice. His emphasis, by design, was on the determination and application of overhead charges. He justified the need for these methods, reasoning that as industry became more complex, more sophisticated methods were required to minimize the manager’s risk of loss.
The work covers in great detail the development of a sound cost accounting system. Separate chapters are devoted to defining the elements of cost, examining materials costs in depth, and reviewing joborder accounting for labor costs. Nine chapters deal with overhead costs, with much attention devoted to discussing the individual elements of overhead. Four later chapters apply many of these specific methods to unique problems in the foundry, textile, candy, and paper manufacturing industries.
In developing the section on overhead, Scovell appears to focus on capital intensive businesses. A discussion of overhead rates favors machine rates for overhead application in preference to other approaches. When considering the determination, analysis, and assignment of specific overhead items to production centers, he devotes more attention to expense items closely related to equipment and its maintenance and operation.
Included in this section of the work is a provocative chapter on the capitalization of interest. Scovell argues for its inclusion in overhead, citing many practical examples for its utility. He also includes an appendix with numerous economic references that support its theoretical soundness. This material, which also covers selection of capitalization rates and the bookkeeping procedures for charging interest to cost, could be read independently of the remainder of the work.
After reviewing the assignment of overhead costs to production centers, Scovell discusses the determination and use of standard running time, or activity, and the computation, use and interpretation of unearned burden, today’s volume variance. Because Scovell recommends using practically attainable capacity for activity, his variance measures unused capacity. He then provides a very convincing argument for the separation of unearned burden from all other overhead charges, including any variance between budgeted and actual overhead, and for its treatment as a period expense. His point is that every manufacturing plant incurs overhead to maintain a certain production capacity and that these overhead charges must be distributed over that same production capacity. He further argues that only with the use of this approach will the influence of varying production on costs be removed, so that costs will change with manufacturing efficiency rather than with changes in production volume.
The remainder of the work discusses the budgeting system, the preparation of financial statements, and the relationship between cost accounting and general accounting records. Scovell stresses the importance of cost behavior in preparing budgets, the timely preparation of reports, and the integration of cost accounting data into the general accounting records to facilitate pricing and production decisions.
Current cost accounting procedures have become more sophisticated, the body of knowledge has expanded through the influence of other related areas and almost seventy years have passed. Still, much of what Clinton Scovell wrote has considerable relevance today.
