外部報告를 위한 直接原價計算의 問題點 = Direct Costing Controversy

다국어 초록 (Multilingual Abstract)

Introduction
Not less than a century has passed since the systematic study of cost accounting had begun. It is generally conceded that accounting originated with the rise of the factory system in the Industrial Revolution in England.
Around the turn of the century, most product costs came to include factory overhead to product as well as prime costs. In this early efforts to charge factory overhead to product, historical costs were generally used, based on actual materials and labor as well as actual overhead costs. However this method of costing couldn't meet the increasing problems of cost estimating and compatible pricing Accordingly predetermined overhead rates had finally gained acceptance by 1910.
Next development in costing was standard costing which emerged during 1920's. Standard costing devices started from the critical stand of past retrospective post-mortem cost accounting. According to the development of increasing complexity of modern industrial system, cyclic and seasonal business field really needed the predetermined cost accounting. During 1930 to 1950, in accordance with the development of managerial uses of costing, cost accounting came to devote to business as management tools i.e., budgeting, break-even analysis, ratio analysis, profit planning and distribution cost analysis.
Looking back to the development of cost accounting, it seems to be a natural step in the evolution of overhead costing. Again early in 1950's direct costing emerged as a new approach to overhead costing. The fundamental ideas of direct costing were first publicized in 1936 by Jonathan H.Harris in an article titled "What Did We Earn Last Month?"
Under this method fixed factory overhed is not assigned to product. Direct costing differs from conventional costing, sometimes called absorption costing, because fixed factory overhead is treated as a period (charged against revenue immediately) rather than as a product cost (assigned to units produced).
Direct Costing versus Absorption Costing The difference between direct costing ("variable costing" is more appropriate) and traditional absorption costing lies in the elements of varaiable overhead cost that are to be included in the cost of goods sold, and in the final inventories. So the direct costing should be defined as a segregation of manufacturing costs between those which are fixed and those which vary directly with volume. The costs of the product are composed of only variable costs and fixed portion of the costs are directly charged against to the revenue of current period. According to this principle of direct costing, this method of costing is different from abosorption costing in three points;
1. Classification of costs,
2. Order of charging costs to revenues, and
3. Valuing the inventories.
The motivation of direct costing stems from the ever incresing mechanization in American industry. With the increase of the scale of business, overhead becomes ever larger element of cost since a substantial portion of this elements largely non-variable in nature, seasonal and cyclic variations in production and sales tend to build up in the inventory, thus reducing the amount of the current period's costs until such time as the inventory is sold. During this period of heavy production, conventional absorption costing may show profits to be high, even though sales are low. During the reverse cycle, the opposite will usually be true.
As mentioned above, under direct costing, inventories are to be valued at direct or variable costs, while fixed cost would be charged directly to expense in the current period. The basic difference in profit and loss statement between absorption and direct costing is that, in case of absorption costing fixed costs are included in inventory, and direct costing, which includes only direct or variable costs.
Undoubtedly this method of direct costing is generally conceived as an accepted technique of internal reporting to management, especially for the pricing policy. However in the areas of external reports to stockholders, creditors, and other outside interest parties, the controversy is in full bloom. Nowdays the main controversy point is centered to the external reportings only.
Direct Costing Controversy
Advocates of direct costing maintain the fixed portion of factory as period costs. Opponents maintain that inventories should carry a fixed cost component because both variable and fixed costs are necessary to produce goods; both these costs should be inventoriable regardless of the differences in their behavior patterns.
Early arguments of direct costing are focussed on the problems of its managerial utility as well as that of its usefulness for external reporting. However the advocates as well as opponents failed to attack the basic premises underlying the direct and absorption costing techniques. Recently these basic premises have been exposed and subjected to careful scrutiny.
One of the most serious arguments over the direct costing can be seen between Horngren and Sorter's advocation of direct costing and Fess and Ferrara's opposition to it.
Cost obviate notion proposed by R.P.Marple was developed further in the series of articles by C.T.Horngren and G.H.Sorter. Especially "Direct Costing for External Reporting" published in 1961 was proposed in an attempt to clear up the possibility of some misinterpretation of basic thoughts and ideas underlying accounting principles. It seems that the basic assumption underlying the Horngren and Sorter thesis is that income is earned at the point of sale, and from which their basic assumption flows the concept of asset which is the central feature of the thesis. According to their thesis an asset represents costs with service potential and service potential is the costs ability to have a favorable effect on expected future costs or revenues. In other words, "a cost has service potential, in the traditional accounting sense, if its incurrence now will result in future cost avoidance in the ordinary course of business."
The ultimate conclusion of the argument is that, generally speaking, the fixed costs of production are costs without service potential since their incurrence in one period has no effect on whether they will be incurred in the future. Variable production costs on the other hand have service potential since their incurrence today will overcome the need for their incurrence in the future. The essence of argument seems to be contained in the idea that the only costs which will be reduced in the future because they are incurred today are variable costs since the fixed costs will remain the same with or without the production of goods which are included in the inventory. In other words, the value of the inventory is determined only by the extra costs occasioned by producing the inventory. Furthermore, these costs occasioned by the production of inventory are costs which will not have to be incurred in the future since the production of inventory reduces the future need for production and hence the future incurrence of variable production costs.
As the alternative to the Horngren and Sorter thesis, Fess and Ferrara state that income is earned (value is added) at each and every stage in the total process of production and distribution, and that the value of an inventory is its net realizable value. Net realizable value represents the utilities acquired through production, sale, and delivery. With this alternative, one considers the costs of producing the net realizable value as used-up service potential; that is, these costs (fixed, variable or otherwise) have no service potential left to them since they have been used up in the production of revenues. The asset inventory has service potential but not in the sense of cost avoidability. The service potential inherent in the inventory valued at net realizable value is that inventory's ability to be converted into cash which can be used again in the acquisition of those resourse necessary for the production of income. If we accept this idea, it is very difficult to make this "value added" concept of income measurement, in most instances and for this reason, it seems appropriate to delay the recognition of earned income until it is more objectively deternimable at the point of sale. Here they emphasized that the point of sale is not regarded as the point at which income is earned, it is regarded as the point at which income already earned is recognized as earned.
This distinction is fundamental to the understanding of the difference between Horngren-Sorter thesis and Fess-Ferrara thesis. The Fess-Ferrara thesis recognizes the point of sale as important but only in terms of being able to ascertain more objectively the amount of income which has been earned step by step through the total process of production and distribution. The conclusion of the Fess-Ferrara thesis is that if the recognition of previsouly earned income is delayed, all costs used up or associated with that income must be delayed. They assert that there is no alternative to such a conclusion if one is truly interested in the calculation of income even though the recognition of that income is delayed in the hope of making it more objectively determinable. As already be seen, the costs to be delayed include all costs used up in producing the delayed income whether they are fixed or variable. Furthermore, even though these delayed costs are considered inventory and thus an asset, they have not service potential, for their service potential has already been used up in the production of income, the recognition of which has been delayed.
Fundamental Problem of Direct Costing
According to the financial statements approach, summarizing the above two theses and other prevailing arguments over direct costing, one can see that the fundamental point of argument is focussed around the categories of income measurement and assets measurement as well.
In the income measurement, probably one of the most fundamental point of controversies between direct and full costing is the question of whether fixed manufacuring costs are costs of product produced or of the period in which they are incurred. Traditionally accounting reports have treated them substantially as product costs, direct costing would treat them wholly as period costs. So the period cost concept and product cost concept play an important role in the measurement of income.
The period cost concept, in its essence, states that there are certain costs which, by their nature, expire with the passage of time, regardless of production activity. They are incurred for the benefit of operations during a given period of time. The benefit is unchanged by the actual level of operations, if any, during that period, and it expires at the end of the period in any event.
The product cost concept states that all manufacturing costs are cost of the product and that there is no such thing as a manufacturing costs the period. According to this concept, logically, all so called fixed production cost should be amortized by a unit-of output method, which would make them variable costs. Time period amortization is acceptable only as a practical convenience, the need for which derives from uncertainty as to future operations. Express another way, a value added approach to revenue recognition accept the deferral of revenue recognition to the point of sale on the grounds that measurement is more objective at that point.
Another important core of the direct costing is assets measurement. As to what constiutes the value of an inventory, the concept of an asset plays an important role in the controversy over direct costing. Nowadays assets are expounded "aggregates of service-potentials available for or beneficial to expected operation" or "expected future economic benefit." Then what is the nature of service potential or future benefit?
There are generally two kinds of approaches to the nature of service potential or future benefit, the one is cost obviation concept of service potential and the other is that of revenue production concept.
According to the cost obviation concept, assets have service potential to the extent that they avery the necessity for incurring costs in the future. In other words, assets are the costs that will be obviated in the future as a result of cost incurrance in the past. However, the past incurrence of fixed production costs does not avoid the reincurred of the same costs in the future. Accordingly, inventories should be included only variable costs.
In case of revenue production concept of service potential, the service potential of an asset means that its capacity to contribute to the production of revenue in the future. This revenue production approach distinguishes between unexpired and expired costs respectively, according to whether their incurrence will or will not contribute to the realization of revenue in the future. Under this theory, any costs essential to the production of a product that may reasonably be expected to be sold and, thus, generate revenue is a cost of obtaining such revenue and should be deferred in inventory so that it may be matched with the revenue in the determination of income for the period of sale.
Conclusion
Recently direct costing has been generally conceded to be useful in reports to management. However whether it is useful to stockholders, creditors, and other outside interest parties is not concluded yet. Accordingly the argument of direct costing is focussed in the area of external reports only.
Historically and practically, financial reports are evolved from the practical usefulness. Therefore the standards of financial reporting should be designed to further this objective of usefulness. When the utility of direct costing is conceded as external reports, the time of general usage of direct costing as external reports will come. But as for now it is hard and no time to anticipate.

목차 (Table of Contents)

• Ⅰ. 序 言
• Ⅱ. 直接原價計算과 全部原價計算
• 1. 直接原價計産의 特徵
• 2. 揚原價計産上의 損益比較
• Ⅲ. 直接原價計産論爭
• 1. 初期段階의 論爭
• 2. 「홍그렌」 및 「소터」의 未來原價回避論
• 3. 「페스」및「페라라」의 附加價値論
• Ⅳ. 直接原價計産의 中心課題
• 1. 利益測定上의 問題點
• 2. 資産測定上의 問題點
• Ⅴ. 結 言