conventional wisdom and costing practices

Management Accounting Research, 1997, 8, 367]382

Conventional wisdom and costingpractices

Trond BjørnenakU

This paper reports results from a study of the parallel development of textbooks usedin cost accounting and of costing practices in Norway during the period from 1936 tothe present. All the major textbooks used in this period are examined with respect tocontent and influences. The findings show that the period can be divided into threephases. The first phase is characterized by the German influence. The second phase isa mixture of the German tradition, Danish and U.S. influence, and the third phase isdominated by the U.S. influence. This development is linked to three survey studies

Ž .of costing practices in Norway 1948, 1963, 1993 , all of which include the largestmanufacturing companies in Norway. These studies show a development that isconsistent with the corresponding development in the textbooks. The paper emp-hazises how the changes made in textbooks correspond with the changes found inpractices, and not the gap per se. The similarity in the developments shows thatconventional wisdom may have played an important role in the institutionalization ofcosting practices. However, today’s costing practices in Norway are more heteroge-neous than the U.S. oriented conventional wisdom found in textbooks. This may beexplained by the lack of a strong costing tradition in Norway and the fact that it iseasier to change textbooks than costing practices. Q 1997 Academic Press Limited

Key words: management accounting; product costing; gap between theory andpractices; institutionalized routines.

1. Introduction

In recent years, researchers have been paying more attention to the link betweencosting practices and conventional wisdom in textbooks. The generally accepted viewseems to be that there is a gap between the content in textbooks and the methods

Ž .used Scapens, 1991 . This view is supported by survey studies of costing practices.The conventional wisdom of management accounting textbooks suggests that inmany situations absorption costing cannot provide relevant costs. In practice, how-ever, absorption costing seems to be the dominating technique in most Western

Žcountries e.g. U.S.: Howell et al., 1987; Hendricks, 1988; U.K.: Drury and Tayles,.1994; Sweden: Ask and Ax, 1992 .

U Institute of Accounting and Auditing, Norwegian School of Economics and Business Administration,N-5035 Bergen, Norway.

Received 7 March 1996; accepted 15 January 1997.

1044]5005r97r040367q16$25.00r0rmg960050 Q1997 Academic Press Limited

T. Bjørnenak368

The gap between costing practice and textbooks and the current criticisms of bothŽ .costing practices and conventional wisdom e.g. Johnson and Kaplan, 1987 are

Ž .based on a limited number of studies of costing practices. Scapens 1994 argues thatmore attention should be given to management accounting practices per se, and lessto the comparisons of management accounting practices against theoretical ‘ideals’.

ŽWith the exception of a few studies e.g. Ask and Ax, 1992; Drury and Tayles, 1994;.Innes and Mitchell, 1995 , there is little evidence of how different costing methods

are being used. There is even less research on why one method is preferred toanother, on how costing practices have developed over time or on the sourcesŽ .institutions that have influenced the development. The latter is the focus of thisstudy.

Both the development of conventional wisdom and the development of costingpractices are emphasized in this paper. However, the purpose is not to show evidenceof a gap or not a gap, but to describe the changes made in both costing practices andtextbooks from period-to-period, and to discuss some of the factors influencing thesechanges. More specifically, the aims of this study are:

1. To describe and comment upon the development of conventional wisdom intextbooks in the period from 1936 untill today.

2. To describe and comment upon the development of costing practices inNorway from the late 1940s untill recent years.

3. To compare the developments of costing practices and conventional wisdomby emphasizing the factors or institutions that influence these developments.

Hopefully, this study will give some insight into the nature of managementaccounting practices and the factors that ‘drive’ the development.

The paper is divided into three sections. The design of the study is outlined in thefirst section. This is followed by a presentation of the developments of conventionalwisdom in textbooks and survey studies of costing practice in Norwegian manufactur-ing companies. The presentation is divided into three phases based on the majorchanges observed in textbooks. The last section summarizes some of the findings ofthis study.

2. The design of the study

Comparing conventional wisdom and costing practice involves using both textbooksand survey studies as input to the analyses. In order to map the development of the

Ž .content of the textbooks, all cost accounting management accounting textbooksŽ .but not all editions used at the Norwegian School of Economics and Business

Ž .Administration NSEBA in the period from 1936 until today have been examined.NSEBA was chosen because of its dominating position in Norway during this period.The point of departure was chosen because it was established in 1936.

The identification of the different periods is based on the content of the textbooksused at NSEBA. These textbooks may or may not be representative for conventionalwisdom in other countries. For example, some ideas were introduced in other

Conventional Wisdom and Costing Practices 369

textbooks earlier than in the books used at NSEBA. However, this study emphasizeswhat is considered to be conventional wisdom in Norway. Two major changes in thecontent of the textbooks are identified, one in the 1950s and one in the early 1970s1.

A major purpose of this study is to compare costing practices and conventionalwisdom at different time periods. Three survey studies are included in the compar-ison. These are:

Ž .v Jensen’s study from 1948 Jensen, 1949 . Includes 117 companies. Responserate: 30%.

Ž .v Langholm’s study from 1963 Langholm, 1964, 1965 . Includes 82 of the 117companies from Jensen’s study. Response rate2

Ž .v Bjørnenak’s study from 1993 Bjørnenak, 1994 . Includes 75 companies withinthe same categories as the two former studies. Response rate: 57%.

A comparison of studies from different periods involves two major problems. Oneis the differences in industries included in the surveys. Although all studies emphasizethe use of costing methods in the major manufacturing companies in Norway, therepresentation of different industries is slightly different in the 1993 study. Twomajor changes in industries can be identified in the periods covered in this study.3

One is the decreasing number of companies in the textile industry. However, thetextile industry does not seem to use significantly different costing methods thanother companies in the surveys. The other major change is the growth of the oilindustry. This industry has very special costing problems, and was thus excluded

Žfrom the 1993 survey. Both the number of companies compared with the total.number of large manufacturing companies in Norway and the response rates

indicate that the studies are representative of major manufacturing companies inNorway. Although a bias in representation of industries may exist, all three studiesinclude companies with a strong interest in costing systems. Thus, it is reasonable tobelieve that major changes in costing practices can be identified.

Ž .Another major problem is the construct validity see e.g. Birnberg et al., 1990 .The outline of the questionnaires varies. The 1963 study emphasized the link

Ž .between costing methods and cost structure Langholm, 1965 and therefore focusedon those parameters. The two other studies took a much broader perspective to

Ždescribe many dimensions of costing practices including allocation bases, cost pools,.etc. . Although the three studies are not directly comparable, they all portray pictures

Žof the major themes in the period described. Thus the studies identify the major but.not all changes, which can be compared with major changes in textbooks.

To some extent the Norwegian surveys are compared with foreign survey studies.These comparisons are far more difficult because both the differences in the represen-tation of industries and in the outline of the questionnaires are larger than betweenthe Norwegian surveys. This should be kept in mind when these comparisons arediscussed.

1The identification of major changes were discussed with the persons involved in teaching at that time.2 The questionnaire was mailed to 109 companies because eight of the respondents in 1948 no longerexisted.3 Ž .See e.g. Hansen and Holt-Jensen 1982 for a discussion of the development of different industries inNorway.

T. Bjørnenak370

The focus in the discussion of costing methods is based on the major elements inthe ongoing costing debate in that period. Textbooks and survey results are thereforediscussed in relation to costing methods, allocation bases, cost pools and other issues.Each period is also described and discussed in terms of the major influences andchanges in the period.

3. Phase 1: German impulses4

The NSEBA was established in 1936 as the first academic business school inNorway.5 In this period the textbooks used were strongly influenced by the Germantradition in general and especially by the work of the German professor EugenSchmalenbach. This influence came through different channels. Schmalenbach’sŽ .1934 book Selbstkostenrechnung und Preispolitik was used as a textbook during thefirst years. The dominating Norwegian book in this period, Coward’s Kostnadsregning

Ž .for industribedrifter , followed the same structure as Schmalenbach 1934 , and wasclearly influenced by the German tradition. The book had 22 references to Germanliterature and seven references to U.S. literature. The same pattern is seen in the

Ž .other textbooks used in this period Kristenson, 1936; Skare, 1943 . Another impor-tant factor was that most of the scholars in this period had a background influenced

Ž .by the German tradition Norstrom, 1995 .The content of the costing part of the textbooks in this period was dominated by

the full cost approach. The importance of distinguishing between variable and fixedcost was, however, pointed out:

The costing schemes should be designed in a way that enables one to separate directcosts, variable overhead and fixed overhead.

Ž .Coward, 1944, p. 287

Ž . 6This point was probably inspired by the work of Schmalenbach 1934 and ClarkŽ .1923 , and variable costing was explicitly expressed as an additional model to

Ž .absorption costing. The method was called ‘minimumskalkyle’ ‘Minimum Costing’Ž .because it expressed the minimum i.e. direct costs plus variable overhead costs at

Ž .which additional work can be undertaken p. 286 .The use of different cost pools and allocation bases was also thoroughly discussed.

Ž . Ž .Both Skare 1943 and Coward 1944 presented alternative classifications of costpools, called ‘kostnadssted’ in Norwegian after the word ‘Kostenstelle’ in German.The normal choice of ‘kostnadssted’ would be department, but Coward also arguedfor other alternatives:

If a manufacturing company follows the conversion of materials in different stepsthrough the factory, then it is natural to divide the production process into sub-processes.

Ž .Coward, 1944, p. 49 .

4 Impulses refers to diffusion of ideas, thus German impulses refers to the adoption of ideas with a Germanorigin.5A more detailed description of the German influence on the academic development of business adminis-

Ž .tration in Norway is given in Norstrom 1995 .6Clark is often given the credit for introducing the concept of ‘different costs for different purposes’Ž .Frank, 1990 . However, Schmalenbach introduced the importance of dividing fixed and variable costs for

Ž . Ž .decision purposes as early as 1899 Solomons, 1952 . It was also a major point in Schmalenbach 1919 ,Ž .which was the first edition of the book used at NSEBA Schmalenbach, 1934 .


The examples given show that the meaning of the concept ‘sub-process’ is thesame as what we today might call an activity. Whether using activities, functions ordepartments, the importance of using many cost pools is pointed out, and littleattention is given to the use of only one plantwide overhead cost pool.

All textbooks specified in this period also contained long lists of proposed alloca-tion bases for different cost pools. These lists were normally based on the work of

Ž .Henzel 1931 , who argued that the overhead costs should be allocated on a causalbasis. The lists included both volume and non-volume related allocation bases, e.g.the proposed allocation base for selling costs was the number of sales orders.

The major impression gained from the textbooks of this period is the amount ofattention given to the allocation of overhead costs and the advanced treatment ofthese costs. One example is Coward’s discussion of how to allocate under-absorbedcost due to sub-normal activity. Coward calls these costs ‘cost of unused capacity’and discusses eight different approaches to this problem. The same concept is used in

Žthe contemporary debate about spending versus consumption see Cooper and.Kaplan, 1991, 1992 .

The first survey of costing practices in Norway was carried out in 1948 by JensenŽ .1949 . The inspiration for this study came from comparable studies made by The

Ž .National Associations of Cost Accountants NACA in the U.S. The outline of thequestionnaire was also, at least partly, copied from the U.S. survey and aimed atgiving a broad picture of costing practices in the Norwegian manufacturing industry.As for the NACA survey, the questionnaires were designed to indicate how thecompanies implemented the full cost approach and there were no questions related towhich costing method the companies used. This was due to an a priori assumptionthat all companies were using absorption costing. However, one of the respondentsspecified that it used direct costing and did not make any attempt to allocateoverhead costs. Others indicated in their comments that they excluded the allocationsin some decisions. This choice of costing method is in accordance with conventionalwisdom of this period. Most of the attention is given to how absorption costing wasimplemented, but the use of ‘different costs for different purposes’ is also pointedout, both in textbooks and by some of the companies.

The most striking feature of costing practices in this period is, however, theextensive use of cost pools and allocation bases. Jensen found that more than 70% ofthe companies used individual department cost pools or work-group cost pools, and35% used more than 30 different cost pools. The survey also showed a differentiateduse of allocation bases. The total number of 22 different allocation bases in use in117 companies is surprisingly high, and supports an impression of a much moreadvanced costing practice than the picture portrayed in the contemporary costing

Ž .debate see e.g. Johnson and Kaplan, 1987; Cooper, 1988 .Other findings in the survey:

v The use of different denominator volumes. Fifteen percent of the companieswere using practical capacity as denominator volume, a choice recommended

Ž .today by, for example, Cooper and Kaplan 1991, 1992 .v Imputed interest was treated as a cost component in the costing schemes of

Ž .most of the companies 57% . This was not accepted for inventory valuation inthe external reporting, and shows how many companies tried to separate

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external and internal costing purposes. This treatment of imputed interest is inŽ .accordance with the German tradition Schmalenbach, 1934 .

v The importance of price regulations. Twenty of the 117 firms specified thatgovernmental regulations affected the design of the costing schemes in anundesirable way, and nearly 50% said that the costing schemes were affected byexternal interests. The dominance of absorption costing may thus, to someextent, be explained by the need to legitimize the quoted price.

The results from the Jensen study may not be totally representative. The set ofcompanies was not randomly selected. However, all the major companies in Norwaywere included and the respondents were probably the most advanced companies withrespect to costing techniques. Although the survey may not give a picture of theaverage company in this period, it certainly shows that the most advanced companiesdeveloped costing schemes in accordance with the conventional wisdom of theperiod.

The German influence in this period is obvious. The conceptual frameworkdeveloped during this period was based on the German tradition, e.g. the conceptsdescribing cost pools and cost objects are translations of the German words andcontent. As for the German system, numerous cost pools and allocation bases were tobe found in both costing practices and textbooks. Clear referances to both activitiesand cost drivers are found in this period. In sum, both textbooks and costingpractices of the period were much more advanced than is usually portrayed in thecontemporary costing debate.

The institutionalization of the German conceptual framework in this period can beŽseen as a combination of a mimetic processes and normative isomorphism Dimaggio

.and Powell, 1983 . There did not exist any strong costing tradition in Norway priorto this period. Adopting the German tradition can thus be seen as a way of reducingthe uncertainty in developing norms for both textbooks and costing practices. ‘Thechoice’ of the German tradition was mainly an effect of the professional network at

Ž .that time see Norstrom, 1995 . However, a coercive effect is also found in theimportance of price regulations in this period.

( )4. Phase 2: mixed impulses 1955–70

The second period is identified by the introduction of new textbooks in costaccounting courses and the changes made in dominating Norwegian textbooks. Theimpulses in the second period no longer had their origin in Germany. This changewas probably due to many reasons, among them:

v The Second World War. The position of the German language was weakenedand the connections with German universities broken during and after theSecond World War.

v The communication channels. The possibilities and speed of diffusion processesgrew as a consequence of better communication channels. The informationfields of the actors in the diffusion processes were extended geographically.

v The general orientation towards the U.S., which became the major source ofboth cultural and academic inspiration. The German tradition was no longer


the norm for the adoption or institutionalization of new ideas. The normativepressure was moved towards U.S. and other allied countries.

v Dominant scholars with a background from the German tradition left the costaccounting area for different reasons.

The change in orientation clearly shows in the reference lists in the major books ofŽ .this period. Skare and Jensen 1957 had 13 references to U.S. literature and five to

Ž .German literature, while the original book, Skare 1943 , had eight references toGerman literature and only one to U.S. literature. The changes made in this periodare, however, not only inspired by the U.S. literature. The work of the two Danishprofessors, Palle Hansen and Vagn Madsen, also had a major impact on the

ŽNorwegian textbooks and were often cited. Moreover, their books Hansen, 1950 and.Madsen, 1963 were the only foreign basic cost accounting textbooks used in this

period.Major changes in this period can be summarized in the following points:

1. The contribution margin approach. This is the major ‘new’ theme in thisperiod, inspired by several sources, e.g. ‘Direct Costing’ from the NACA-Bul-

Ž .letin 1953 . However, the most important reference in the textbooks seems toŽ .be Hansen 1950 , which was also used as a textbook.

2. Cost control and standard costs. All textbooks in this period introducedseparate chapters describing the features of standard costs and variance analy-sis. A key source of inspiration for these sections was How Standard Costs AreBeing Used Currently, published by the National Association of Cost Accoun-

Ž .tants 1951 . U.S. textbooks were also frequent references.3. The concept of variability-based accounting and the cost recording task. This

Ž .can be traced to the work of Madsen 1963 and his arguments about theŽimportance of the cost recording task and variability factors i.e. cost drivers,

.see Israelsen, 1993 .

As a consequence of these changes, the presentation of the full cost approach wasreduced. The German inspired allocation schemes still existed to a certain extent, but

Ž .the discussions were clearly reduced, especially compared to Coward 1944 . This isconsistent with the expanding focus on the contribution margin approach.

There were no survey studies with a broad perspective in this period. However,Ž .Langholm 1964, 1965 studied companies which changed their costing system from

an absorption costing approach to a contribution margin approach. The populationin this survey was the respondents from Jensen’s survey of 15 years earlier. The majorfindings of this survey were:

v The diffusion of the contribution margin approach. Langholm reported that45% of the respondents changed their costing system; 23% changed to ‘direct

Ž . Žcosting’ excluding variable overhead and 22% to ‘variable costing’ including.variable overhead . The high rate of direct costing may be explained by a

cost]benefit argument for the allocation of variable overhead.Ž .v The link between costing method and cost structure. Langholm 1965 tested

whether the change of costing method could be linked to cost structure. Thenull hypothesis was that the adopters of variable costing had the same percent-

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age of fixed costs as the non-adopters. Using an F-test against an alternativehypothesis that the adopters had a higher percentage of fixed costs, Langholm

Ž .found significant support for the alternative hypothesis P-values0.0008 . Theresult supports the hypothesis that a firm’s cost structure is an importantdeterminant in the choice between retaining or rejecting the full costingprinciple. This can also be interpreted as supporting a cost]benefit argument,where the companies with the highest benefits are the first adopters of variablecosting.

The percentage of adopters of the contribution margin approach is surprisinglyhigh compared to more recent international studies. To some extent it also fills thegap between costing practices and conventional wisdom. Langholm suggested thatthe remaining gap may be explained by a cost]benefit decision. In 1975, Vagsether˚Ž .1975 found an even higher adoption rate of the contribution margin approachŽ .66% . This may be interpreted as a further support for the cost]benefit hypothesis.

However, a major problem with both Langholm’s and Vagsether’s surveys is the˚Ž .assumption that companies use either variable costing direct costing or absorption

costing, excluding the possibility that companies could be using both methods. ThisŽis an assumption that also seems to be common elsewhere. More recent studies e.g.

.Ask and Ax, 1992; Bjørnenak, 1994; Drury and Tayles, 1994 show that differentmethods are being used for different purposes.

Whether both methods were being used or not, there is no doubt about theimportance of the contribution margin approach in this period. Again the institution-alization of this method is a combination of mimetic processes and normativepressure. After the first set of adopters were convinced, a bandwagon effect seems tohave occurred. Both academic institutions and consulting firms played an importantrole in the diffusion of the contribution margin approach. Unlike in the U.S. and

Ž .Sweden NACA, 1953; Ask et al., 1996 , neither tradition nor the profession servedas barriers to change in Norway. This is further discussed in the last section of thisarticle.

5. Phase 3: U.S. impulses 1970–1996

In this period the orientation towards the U.S. is even more obvious. The period isidentified by new books taking over the dominant position at NSEBA. None of thescholars teaching cost accounting in this period had a background from the Germantradition, and most of them had an academic background from the U.S. This mayalso explain why most of the German references disappeared during the 1960s. Atthe same time the number of references to U.S. literature was growing. For example,

Ž .Skare et al. 1973 had 12 references to U.S. literature and only one to GermanŽliterature. The most important textbook in the first years of this period, Riise 1979,

. Ž .1987 , had 32 U.S. references and only one German reference 1987 . The finalbreak with the German tradition, however, came with the introduction of the

Ž . Žtextbook of Horngren and Foster 1987, 1991 . The latest version Horngren et al.,.1994 is today the most important textbook in the cost accounting course at the

undergraduate level at NSEBA.


The textbook development in this period is characterized by:

1. Impulses from the Danish tradition vanished. Chapters presenting the variabil-ity-based accounting system disappeared during the period.

2. Less attention is paid to the use of different allocation bases. References toGerman inspired allocation schemes are no longer included in the textbooks.Nearly all allocation examples are based on direct labour hours, labour costs ormachine hours. The use of many allocation bases, however, is reintroduced in

Žlater years by the attention given to Activity Based Costing e.g. Horngren and.Foster, 1991 .

3. Less attention is paid to the treatment of interest cost. In earlier periods, alltextbooks included a chapter on how to treat interest as a cost component in

Ž .the calculation of full product costs.4. More attention is paid to the modelling of different decision situations. More

emphasis is placed on problems concerning optimal production volumes,prices, order quantities etc., as well as on tools to calculate the optimal

Ž .production level e.g. linear programming .5. More attention is given to the income effect of alternative inventory-costing

methods. In general, the impact of external reporting on cost accounting wasgrowing in this period. Inventory-costing was a minor topic in the formerperiods.

6. More attention is given to performance measurements. Decentralization,transfer pricing and performance evaluation are important topics in thisperiod.

The U.S. influence also becomes apparent in the cost accounting language. For theŽfirst time since 1936, the German inspired Norwegian words for cost pools ‘kost-

. Ž .nadssted’ and cost objects ‘kostnadsbærer’ are today not found in any of thetextbooks used at NSEBA, including the Norwegian translation of Horngren et al.Ž .1994 .

Table 1(The use of costing methods in different situations numbers are given in

)percentages

Variable Absorption Both

7Principal method 55 29 16

Pricing 34 17 49

ProfitabilityAnalysis 48 10 42

Transfer pricing 33 43 24

Inventory-costing 24 56 20

7Principal method was included in the questionnaires because the earlier Norwegian studies did notdifferentiate between different situations. The concept is ambiguous because different methods are

Ž .preferred in different situations. However, it indicates the respondents general may be institutionalizedview of the two methods.

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The survey of costing practices in this period is based on data from 75 of the majormanufacturing companies in Norway. The results from this study show a differenti-ated use of costing methods as shown in Table 1.

The results undermine at least two common beliefs. First, the results show thatabsorption costing is not the dominant costing method. One of the cornerstones inthe assumed gap between costing practices and conventional wisdom is based on

Ž .survey studies showing the dominance of absorption costing Scapens, 1991 . This isclearly not true in Norway. The dominant position of variable costing was also found

Ž .in a survey of Finnish costing practices Lukka and Granlund, 1996 .Second, the results show that nearly all companies were using both variable and

Ž .absorption costing in at least one situation 93% . This undermines results frommany other studies based on an a priori assumption that companies are using either

Ž .variable or absorption costing e.g. Howell et al., 1987; Schwarzbach, 1985 . Oneconsequence of the results is that asking which costing method is used is rathermeaningless when the situation in question is not specified.

The questionnaire did not include questions about the reasons for choosing onemethod in favour of another. However, one respondent gave the following reason forusing both methods:

‘Currently we are using variable costing because demand is low. In periods of excessdemand we are using absorption costing’.

This respondent indicated that overhead allocations are used as proxies for theŽ .opportunity costs see e.g. Devine, 1985 .

Another interesting aspect of costing practices is the number of indirect cost poolsand allocation bases. Only one company was using one plantwide overhead rate,whereas two-thirds of the companies were using departmental overhead rates. Theother companies were using working groups, machine groups or activities as bases forcost pool definitions. The number of cost pools in use was also rather high. Morethan 50% were using more than 10 indirect cost pools. As for the study in 1948, thiswas more advanced than the impression given in the contemporary costing debate.

The number of different allocation bases in use is, however, in accordance with the‘Relevance Lost’ perspective. About one-third of the companies were using only onetype of allocation base, for example direct labour. Another third were using two

Table 2Allocation bases in use

Allocation base Percentage ofcompanies using it

Number of units produced 40

Direct labour costs 37

Machine hours 29

Direct labour hours 28

Direct materials costs 26

Other allocation bases 23


different allocation bases and the last third were using more than two differentallocation bases. The most common allocation bases are shown in Table 2.

An interesting observation is the reduced number of allocation bases in use,compared with the 1948 study.8 These studies are not totally comparable, but the1993 study represents the largest manufacturing companies in Norway, and pre-sumably the companies with the most advanced costing practices. This observation isin accordance with the changes found in the textbooks. More attention is now givento different costs for different purposes and to the contribution margin approach, lessto the allocation of overhead costs. The same seems to be true for costing practices.

This picture is currently in the process of changing due to the introduction ofŽ .Activity Based Costing ABC . Although the elements of ABC are clearly related to

Ž . Žconcepts such as Activity Accounting Kohler, 1952 , Activity Costing Staubus,. Ž .1971 , Variability-based accounting Madsen, 1963 and other ideas discussed ear-

lier, the debate following the introduction of ABC has had a major impact on theŽcontent of the textbooks used today see, e.g. the changes made in the sixth, seventh

Ž . .and eighth editions of Horngren and Foster Datar , 1987, 1991, 1994 . The samechanges are seen in costing practices. Of the 75 respondents in the survey, 53 hadABC-knowledge. Thirty of these companies said that they had implemented, werecurrently implementing or planned to implement ABC. Of the other 23 companies,11 said that they did not want ABC and 12 had not yet decided whether toimplement it or not. This observation is consistent with the findings of other surveysŽ .e.g. Ask and Ax, 1992; Drury and Tayles, 1994; Lukka and Granlund, 1996 . ABCis selling rather well, but relatively few companies have yet implemented it. This isboth consistent with a cost]benefit reasoning and with the fact that there is a time lagbetween the introduction of new ideas in textbooks and the implementation of thesein companies. This does not imply that textbooks cause changes in costing practices.Rather it shows that the major new topic in textbooks is also the major new topic incosting practices.

The same mechanisms that promoted the contribution margin approach in theŽ .1960s are also dominating the scene in the diffusion of ABC Bjørnenak, 1996 . The

normative pressure is clearly observable. Consultants and professional organizationsare writing articles and giving courses to spread the ‘innovation’. In their effort theyare using rhetoric to impose uncertainty on potential adopters, e.g. by emphasizingthe failure of traditional costing methods.

6. The gap

The purpose of this paper has not been to give a complete picture of the developmentof either costing practices or conventional wisdom. Instead it has been an attempt toportray the major impulses from different sources for both costing practices andtextbooks. An overview is shown in Table 3.

Ž .The two columns textbooks and costing practices cannot be compared directly.The survey studies only give a fragmented picture of the costing practices in the

8Construct validity problems may exist in this comparison.

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Table 3Major characteristics in three phases

9Phase Source of Textbooks Costing practicesŽ .inspiration major new topics major characteristics

1936]55 German tradition Advanced allocation Advanced allocationHow to implement absorption costingabsorption costing

1955]70 U.S.rDanish Contribution margin Contribution margininspiration Standard costing

Variability accounting

1970]95 U.S. inspiration Decision orientation Different methods forOptimal production different situationsInventory valuation

period because only a limited number of subjects were included in the studies.Standard costing may thus have been one of the major topics in practice in the 1950sand 1960s, but the survey studies did not include this topic.

The first impression is not the gap, but rather the clear link between changes inpractices and textbooks. The 1948 survey showed that costing practices were charac-terized by a large number of allocation bases, many cost pools and a dominance ofabsorption costing. The same impression is given by the textbooks used in thisperiod, and follows directly from the German influence. Both textbooks and costingpractices were more advanced than portrayed in the contemporary costing debate.One major topic in the 1960s was the contribution margin, the fundamental features

Ž .of which were discussed in Coward 1944 , but the use of variable costing in decisionmaking and the critique of absorption costing were extended in this period. Variablecosting was also a great success in practice. Langholm found an adoption rate ofnearly 50% in 1963. This is a higher rate than observed in most other countries,although a significant number of companies also seemed to have adopted variable

Ž .costing in other countries e.g. Sweden, U.K. and Finland . Many survey studies mayalso have underestimated the adoption rate by overlooking the fact that companiesare using different methods for different purposes. This was seen in the 1993 survey,where most companies were using both methods. The use of different costs fordifferent purposes is consistent with the major theme of textbooks developments inlater years.

The link between changes in costing practices and changes in textbooks seems tocontinue. The major new topic today is Activity Based Costing. Most textbooksadopted the conceptual framework related to ABC around 1990, and since then, agrowing interest has occured in most Western countries. As for earlier innovations,there is a time lag between the introduction in textbooks and the adoption inpractice.

Not surprisingly, a gap between costing practices and conventional wisdom intextbooks is found in all periods. As for most other changes, the introduction of new

9Textbooks refer to textbooks used at NSEBA, not all textbooks used in the period. Thus, other textbooksin this period may have included other topics.


ideas must pass a cost]benefit test, which may explain the time lag betweentextbooks and practices. It may also explain the fact that not all ideas are introducedin practice. However, it is not the gap at a given point of time that is the mostinteresting part of this study, but rather the changes made from period-to-period. Astudy of the development of conventional wisdom is shown to be potentially usefulfor understanding the development of accounting practices.

7. Institutions and costing practices; impulses and tradition

Ž .Institutions often play important roles in the diffusion of ideas Bjørnenak, 1996 . Insome cases they may act as propagators, in other cases as moderators of changes.Thus, it is reasonable to expect costing practices to be effected by institutions such asacademic institutions and major companies involved in setting standards for theprofession. Both Norwegian textbooks and costing practices seem to be stronglyinfluenced by impulses from other countries. This may be explained by less barriersto change and a greater openness to impulses from different sources. However, itmay also be a symptom of a weak Norwegian tradition in the field of cost accounting,where institutions outside Norway play a more important part than Norwegianinstitutions in forming textbooks and costing practices. A comparison with thedevelopment in Sweden may illustrate the latter argument.

Ž .The first Norwegian cost accounting textbook, Skare 1943 , was the source of twoparallel developments in Norway and Sweden. In Norway, the book was published in

Ž .seven editions, from second edition as Skare and Jensen 1957 and later as Skare etŽ .al. 1973 , which was the last edition. In Sweden, it was published first as Skare and

Ž . Ž .Vesthagen 1946 , later as Skare et al. 1954 . Also today the book has a majorŽ .position as Johansson and Samuelson 1992 , which is the eighth edition. The major

difference between the two developments is to the extent to which impulses camefrom other countries.10 In the Norwegian books the changes were based on foreignimpulses. This is symbolized in the books’ reference lists. For instance in Skare et al.Ž .1973 , 12 of the references were to U.S. literature and only four to Norwegianliterature. The opposite was true for the Swedish books. In the latest book, Johansson

Ž .and Samuelson 1992 , 28 of the references are to Swedish literature while only nineare to U.S. literature. The small number of Norwegian references characterizes allthe Norwegian books, and symbolizes the weak tradition of cost accounting in

Ž .Norway see also Norstrom, 1995 . Norwegian academic institutions have had a verylimited influence on the changes made from period-to-period. In all the Swedishbooks examined, the results show that Swedish references dominate. The referencesindicate that changes made in Swedish textbooks to a larger extent are discussed inacademic institutions, and that academic institutions have had a major impact on thechanges made.

Another important determinant of costing practices is the development and impactof costing standards. In Sweden, these standards have always had a major impact on

Ž .textbooks and costing practices Ask et al., 1996 . Both academics and the leadingcompanies have played important parts in forming costing standards. For example,academics have worked closely with industrial associations to develop costing

10 It is assumed that new references in the textbooks also refer to new impulses, i.e. the adoption of newideas.

T. Bjørnenak380

Ž .textbooks e.g. Frenckner and Samuelson, 1989 . In Norway, the most importantŽcosting standard seems to have been the 1936 Swedish standard Sveriges

. ŽIndustriforbund, 1937 . Standards have been developed mainly copied from Swedish¨.standards , but not included in textbooks, and have had a limited impact on courses

in cost accounting at NSEBA. In Sweden major companies like ASEA, Ericson andVolvo have been involved in the setting of standards for costing purposes. The sameis not true for Norway. This may be due to differences in industry structure. Adeeper study of differences in costing tradition between Norway and Sweden shouldaddress this question.

Although the German tradition vanished in Norway during the 1950s and 1960s,there are still signs of this tradition in the Norwegian costing practices. In 1993,about one-third of the Norwegian companies treated interest as a cost element intheir costing system, i.e. imputed interest was included in the definition of fullproduct costs. The high number of cost pools is another example. A third is theconcepts used to describe the costing systems, where the German inspired concepts

Ž .still dominate in costing practices but not in textbooks .This shows that both tradition and impulses influence costing practices. The effect

of the foreign impulses seems to be a function of the strength of the tradition. Puttingan institutional frame of reference to the differences between Norway and Sweden,the change mechanisms seem to act differently in the two countries. The professionalnormative pressure seems to act against change in Sweden, while the normativepressure in Norway has always been towards change. Homogeneity has thus beendifficult to achieve, because the norms that practices are supposed to adopt have beencontinuously changing. However, more research has to be done to examine thesequestions, and to better understand differences between countries.

8. Concluding remarks

This study documents the close relationship between the introduction of ideas intextbooks and in costing practices. However, one cannot conclude that textbookshave a major influence on costing practices. More likely, both costing practices andtextbooks are the results of the same institutional influences, for example academicinstitutions or consultants introducing the contribution margin approach in the1960s or ABC in more recent years. The developments can be described as a fightbetween traditions and impulses. The institutional strength seems to be different indifferent countries and may be a major explanation for the difference between costingpractices in, for example, Norway and Sweden.

An important result of this study is the call for more research on how institutionseffect costing practices. Some differences between Norway and Sweden are discussedin this paper. Denmark, which was the origin of many impulses in Norway mighthave been included in the study. However, there may also be similarities in othermore distant countries. For example, countries in Eastern Europe are today using the

Ž .same U.S. or U.K. textbooks as in Norway. Further research should be designed toachieve a better understanding of the homogenization of conventional wisdom incountries with totally different traditions.

The study also undermines some of the arguments in contemporary costingdebates. Practices seem to be more advanced than portrayed in such debates. Costingsystems are not totally dominated by the external reporting procedures; instead,


different costs for different purposes are being used. There are also great differencesbetween companies, which may be interpreted as a result of cost]benefit analyses.The major conclusion is, however, that there seem to be lots of explanationsunderlying the characteristics of costing practices and that an institutional frame ofreference may be an important source for understanding how and why changes incosting practices occur.

Acknowledgements: This paper has greatly benefited from discussions at the Nordic Conferenceon Business Studies in Copenhagen. My thanks are also due to David Cooper, Robert Scapensand two anonymous reviewers for very helpful comments.

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