MADHAV V. RAJAN, Stanford Graduate School of Business
Email: MRAJAN@GSB.STANFORD.EDU
STEFAN J. REICHELSTEIN, Stanford Graduate School of Business, CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Email: reichelstein_stefan@gsb.stanford.edu

The reported cost of a product frequently contains historical cost components that reflect past investments in productive capacity. We examine a setting wherein a firm makes a sequence of overlapping capacity investments. Earlier research has identified particular accrual accounting (depreciation) rules with the property that, on a per unit basis, the historical cost of a product captures precisely its marginal cost. Relative to this benchmark, we investigate and characterize the direction and magnitude of the bias in reported historical cost that results from alternative depreciation rules, including in particular straight-line depreciation in conjunction with partial direct expensing. In addition, we demonstrate that for a reasonable range of parameter specifications the resulting bias is rather small. Finally, we apply our framework to two specific settings. First, in a regulatory context, we establish the extent to which the Accounting Profit Margin is indicative of a firm's pricing power in the product market. Second, we model an internal control scenario in which a manager's performance is evaluated using residual income, and identify the distortions in investment levels that result from the use of alternative depreciation rules.

LINO CINQUINI, Sant'Anna School of Advanced Studies
Email: l.cinquini@sssup.it
PAOLO COLLINI, Università degli Studi di Trento - Faculty of Economics
Email: Paolo.Collini@unitn.it
ALESSANDRO MARELLI, University of Teramo
Email: amarelli@ec.unipi.it
ANDREA TENUCCI, Sant'Anna School of Advanced Studies
Email: a.tenucci@sssup.it

The issue of cost calculation has been largely debated in the last years under the pressure of the perceived lost of relevance of the so called traditional cost accounting approaches. The enthusiasm for new management accounting techniques has often driven most of attention towards technical or theoretical aspects of the proposed new cost models. In particular, Activity-Based Costing (ABC) implementation literature pinpoints a large number of studies that have looked at technical and organizational/behavioral factors that influence effective implementation.

Recently a great attention has been paid by researchers on the contingent factors affecting the adoption of advanced management accounting techniques and the influence of the variables that drive towards higher levels of cost system sophistication. The need is felt for insightful studies regarding processes and contingent variables working through time in relation with these changes. Improved analysis can be obtained by undertaking replication studies based on larger number of responses and/or across geographic and cultural borders. Whitin the boundaries of a contingent framework analysis, this paper has provided additional insights into areas relating to factors influencing the level of sophistication of product cost systems in Italy.

The paper presents the comparison of two survey results carried on in a ten years distance on the same sample of Italian largest companies. These two long-distance surveys provide the opportunity to assess the changes occurred in the companies that in 1996 declared the adoption of (or the interest in adopting) ABC and Target costing (Cinquini et al., 1999). Moreover, the time elapsed could allow the perception about adopters' behavior, along different stages of the diffusion process of advanced costing techniques. The research findings pinpoint that only importance of cost information and cost structure, among the contextual variables considered in the more recent survey responses, are positive and significant in relation with increasing in implementation of advanced costing techniques. This outcome could open to further studies to assess whether or not adopters are moving from a fad and fashion behavior of the early stages, to a more rational approach in which the matching between management needs and tools potentiality is maximized.

SERGEI V. CHEREMUSHKIN, Mordovian State University named after N.P. Ogaryov
Email: chermserg@yandex.ru

The paper supplies additional explanations to my earlier published article What's Wrong with the Economic Value Added. It stresses that the construction of Accounting based Capital Charge doesn't mean the departure from market values of cost of equity and cost of debt. On the contrary Accounting based Capital Charge restores the truth and adds the amounts of opportunity costs on equity invested and debt invested according to the weights of equity and debt in the total amount of Invested Capital. Accounting based EVA still maintains the linkage with the market capital structure by means of Cost of Levered Equity, which should be used to calculate Accounting based Capital Charge. The Cost of Levered Equity embraces the effects of capital structure, as well as Cost of Debt does, which is also reacts to the changes in financial leverage.