Cost Accounting and Cost Comparisons: Methodological Issues and Their Policy and Management Implications.

Abstract This article addresses methodological and conceptual issues associated with measuring and comparing costs. Cost accounting has shown remarkable progress over the past several years, and, where pursued skillfully, appears to have served management needs well. The determination of the cost of a product or service for a company, or for one of its parts, generally is satisfactory for many management decisions. When we try to explain differences in the costs incurred by two or more producers of the same or highly-similar products or services, however, cost accounting is not so successful. From both a policy and management perspective, then, there is a need for a methodology to identify and quantify the effects of the structural and service center factors that complicate cost comparisons. Without an improved methodology, we continually will be faced with situations in which misleading and potentially-unfair comparisons are made between two or more organizations producing similar products or services. Indeed, to the extent that an organization's financial survival is conditioned by third-party reimbursement, or its ability to deliver quality products or services in a timely fashion, is dependent upon adequate resource flows, a cost comparison methodology that permits more informed managerial actions and public policy choices is essential.