Abstract The purpose of this article is to demonstrate and analyze the differences in accounting method within the three different schools. In addition, the article examines the distinctions among the three approaches as claimed by their respective advocates. In the discrete model, interim reports are prepared on the same basis as annual reports. Full independence is granted to each quarter comprising the year, and no attempt is made to adjust the quarterly report to an annual basis. Each quarter is treated as a "quarterly venture" in much the same way as the annual period is regarded as an "annual venture." The modified discrete approach is an extension of the strict discrete in this model the firm uses a predetermined overhead rate with any variances charged to cost of sales each quarter. Much support appears for this model in practice for studies have indicated that most companies do not inventory any portion of underabsorbed overhead. The basis for the various prediction theories is the assumption that the annual costs are incurred to benefit the entire annual venture, regardless of when production occurs or when costs are incurred. Each quarter of the year should be charged a fair share of annual costs.
Bollom et al. (Sat,) studied this question.