Management Accounting Research , 1997 , 8 , 255 – 259

Editorial

Special Section : German Cost Accounting Traditions

Cost accounting has increasingly become international . Traditions and current developments in one country often spread over to other countries . However , the direction of this transfer of concepts occurred mostly from English-speaking countries and their scientific outlets to other countries . The reverse direction has only recently become fashionable . For example , Japanese management accounting and German cost accounting have increasingly been taken up and discussed in the international literature .

To a great extent , the mainly one-way transfer of knowledge is due to the pervasive use of English as the ‘common language’ in accounting research . The original literature is dif ficult to access by international researchers because of ef fective language barriers . Thus , quite often , the international community must depend on papers whose main screening criterion is that they are written in English . German scholars rarely wrote papers in English to acquaint international cost accounting researchers with their traditions and solutions of cost accounting issues . This is particularly regrettable because German cost accounting looks back to a hundred-year-old tradition . And there appear to exist instances of early ideas that are re-invented decades later in other countries .

This Special Section attempts to fill in this gap . We solicited survey papers from leading German cost accounting scholars to provide a first-hand insight into the major developments of German cost accounting traditions . The three papers can , of course , not cover every German cost accounting system and their historical development . Rather , they comprise a selection of the major systems and thoughts that are considered particularly ‘Made in Germany’ from an international point of view .

Overview of the papers in the Special Section

The first paper is by Thomas Schildbach and provides a survey of the developments of German cost accounting from the very beginning to the present . The early developments are closely related to Schmalenbach who is perhaps better known internationally for his contribution to financial accounting ( Dynamische Bilanz ) than to cost accounting even though he was very active and successful in both areas . Schildbach also gives an overview of Flexible Standard Costing ( Grenzplankosten - rechnung ) and other systems . His paper ends with a discussion of current developments in German cost accounting , particularly the usefulness of costs as a basis for long-term decisions . This provides a link to current international discussions .

1044 – 5005 / 97 / 030255 1 05 $25 . 00 / 0 / mg970051 ÷ 1997 Academic Press Limited

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The next paper by Ju ̈ rgen Weber and Barbara Wei ß enberger surveys Riebel’s ‘ Relative Einzelkosten - und Deckungsbeitragsrechnung ’ which is a relative , or as the authors prefer to say , generic , direct costing system that avoids any allocation of costs . This is achieved by imposing a strict interpretation of the principle of cause and ef fect (the so called principle of identity) and by introducing a hierarchy of cost objects , hence the word ‘relative’ . Riebel developed his system as a response to several—in his view—unpalatable assumptions underlying Flexible Standard Cost- ing . Curiously , as the term ‘Riebel’s approach’ indicates , it is his approach , there have been few follow-up papers by others that would add more than a marginal contribution to his own publications . Weber and Wei ß enberger conclude their paper with several points why it is nevertheless worthwhile to study the system in some depth .

The third paper by Josef Kloock and Ulf Schiller portrays the conceptual features of Flexible Standard Costing . The reader will note that their presentation of Flexible Standard Costing contrasts with that of Schildbach , even though in principle they do describe the same cost accounting system . Kloock and Schiller build up the system from a very general production-theoretic basis , and by coining it ‘marginal costing’ they want to indicate that this rigorously developed stylized approach dif fers from the version that is widely used in German practice . The benefit of their presentation lies in the clear exposition of the major steps involved : budgeting costs , allocating them and calculating product cost . They also seek to show the relationship with activity-based costing , particularly with respect to assigning indirect costs to products . They finally give some insight into the particularly ‘German’ discussion of how to perform a cost variance analysis .

Some peculiarities of German cost accounting systems

The papers in this Special Section shed some light on peculiarities of German cost accounting traditions that deserve mentioning . The development of German cost accounting is characterized by a close connection to production theory . The assumptions of neoclassical production theory form the basis for the development of accounting systems in the sense that these assumptions are used to describe the firm before the accounting system is analysed . The Kloock and Schiller paper gives an example of this approach .

Another key feature of German cost accounting is that the object of analysis is the accounting system . Often the total accounting system is analysed or new accounting systems are constructed . The developments in the English literature are more partial in their approach to studying accounting issues . The three papers in this section are all evidence of this .

Looking at textbook coverage of cost accounting , one notes the fragmented market in Germany : taking the risk of exaggeration , most scholars who teach cost accounting at a university in a German speaking country have written their own textbooks (this can , of course , be proven for the authors of the articles in this Special Section 1 ) . Most of them use two criteria to distinguish cost accounting systems : (i) the cost basis : actual costs , normal costs , and standard costs ; (ii) the

1 Kloock et al . (1993) , Weber (1995) ; even one of the guest editors has done one : Ewert and Wagenhofer (1995) .

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extent to which costs are included in the system : full costs or part of them , e . g . marginal costs or variable costs . The costs that are not included are usually deducted in a perhaps multi-stage manner at the end .

Both Flexible Standard Costing and Riebel’s Relative Direct Costing , which are given prominance in the three papers , are standard costing systems that work with part of the full cost . They are perceived as the major German developments , and they are covered in almost every German textbook . In contrast , only Flexible Standard Costing found its way into practice . Indeed , it is considered the most pervasive cost accounting system in Germany (see also Kloock and Schiller) . This is in part due to the fact that it of fers a comprehensive and relatively simple framework which can easily be implemented on a computer ; for instance , the SAP accounting software uses many features of Flexible Standard Costing . It can even work with full costs , and , in fact , most companies which employ this cost accounting system run two columns of costs , variable costs and full costs . These advantages derive from imposing strict assumptions on cost behaviour . Riebel’s Relative Direct Costing has maintained the status of a formal , theoretical cost accounting model without practical relevance . It is more like a way of thinking , which is at least partly due to the many pieces of information required to run it in practice . It does not of fer such a convenient and easy structure as does Flexible Standard Costing .

Similar to most other countries , however , empirical studies of the cost accounting systems used in German practice show a wide variety of dif ferent systems , most of them being a mixture of the pure systems advanced in the textbook literature . Table 1 lists several empirical results which are , unfortunately , dif ficult to reconcile . However , it is apparent that the statement that Flexible Standard Costing is the most pervasive cost accounting system in Germany holds only with respect to its structural features .

In the Fifties and Sixties when most systems were developed , enormous ef fort

Table 1 Empirical results of the use of dif ferent cost accounting systems in Germany ( summarized and condensed from Schweitzer and Ku ̈ pper , 1995 , p . 521)

Systems Marner 1980

Frost and Meyer 1981

Ku ̈ pper 1983

Becker 1985

Ku ̈ pper and

Hof fmann 1988

Actual costing 87 . 0% 52 . 6% 43 . 7% Average costing 6 . 7% 17 . 0% Standard costing 57 . 6% 32 . 6% 56 . 8% Standard costing at full costs 12 . 5% 34 . 4% 47 . 5% Part of cost 62 . 5% 10 . 7% 5 . 0% One-stage contribution costing 12 . 5% 9 . 8% 9 . 6% 11 . 5% Multi-stage contribution

costing 56 . 3% 25 . 0% 51 . 9% 33 . 9%

Flexible Standard Costing 17 . 8% 18 . 6% Relative Direct Costing 18 . 8% Combination of full and part

of cost 28 . 6% 51 . 3% 38 . 5% 23 . 5% 55 . 2%

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was devoted to defining fundamental concepts and terms that underly cost accounting . Most textbook authors still carefully distinguish between cost in cost or managerial accounting , expenses in financial accounting , and cash flow usually based on two dif ferent funds , cash and net working capital (see also the Kloock and Schiller paper) . The dif ference between cost and expense is considered particularly important ; it comprises imputed costs ( kalkulatorische Kosten ) such as depreciation , provisions for warrants , both of which dif fer from their expense counterparts , opportunity cost of equity , and an opportunity ‘wage’ for the managing owner . As a consequence , profit calculated in the cost accounting system dif fers from profit in the financial accounts . Such a distinction is not common in North American textbooks , for instance . The reason to emphasize the distinction lies in the widely held opinion in Germany that financial acounting numbers do not support managerial decision-making . This traces back to Schmalenbach’s view that the principles underlying the financial accounts—while useful there—provide biased information for management and are thus of no use (see the paper of Schildbach on this) . Another reason to keep and even intensify it further was the use of these (generally) higher costs for price (and profit) justification against the government in the Thirties and early Fourties . Like many other concepts , it has survived until today , where it is also seen as a consequence of the close ties between the financial statements and tax accounting in Germany .

It is of interest to note that the distinction is currently under scrutiny from practice (e . g . Siemens apparently abandonned it recently) . The major economic force behind this development is that German-based multinationals increasingly use international accounting standards (IAS or US-GAAP) for financial reporting . These standards are viewed as resulting in less biased numbers , e . g . because they put less weight on principles such as prudence , and are not tax driven . Thus , a distinction seems unwarranted . However , this approach has been challenged by theory which is still in favour of the distinction between expenses and costs , mainly due to the dif ferent purposes of financial and managerial accounting .

In the last ten or so years , there have been attempts to develop costs on the basis of cash flows . The argument is that costs are nothing more than a simplified measure of the underlying multi-period cash flows . This capital budgeting-based approach ( Investitionstheoretischer Ansatz ) basically considers the relationship between cost definitions and discounted cash flow , and the assumptions necessary to derive ‘traditional’ cost concepts . 2 Some flavour of this discussion can be found in the paper by Kloock and Schiller .

Another peculiarity is the existence of a ‘revenue accounting’ ( Erlo ̈ srechnung ) which parallels the structure of cost accounting ; namely , distinguishing revenue in managerial accounting from revenue in financial accounting , allocating revenues to revenue pools and calculating revenue of objects (such as products , customers , or territories) . In addition , there have been several developments in the techniques of variance analysis of revenues and sales . The problem here is that the variables explaining the variance are functionally dependent , generally , e . g . sales quantity and price . This prohibits application of the standard way of decomposing the variance that is well-known from cost variances .

2 For a discussion of the major arguments see , e . g . Schweitzer and Ku ̈ pper (1995) and Ewert and Wagenhofer (1995) , Ch . 2 .

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Final remarks

To come back to the relationship between German cost accounting and interna- tional developments , it was mentioned at the beginning that the direction of influence was mostly one-way from English speaking countries and publications to Germany . This was true in the Fifties and Sixties when the development of Flexible Standard Costing digested early North American literature on Standard Cost Accounting and Direct Costing (Kilger , 1993 , pp . 33 – 36 , 64 – 67) . A more recent example is the discussion activity-based costing (ABC) triggered in Germany . Taken up euphorically in the first place , there were soon warnings on its methodology of allocating fixed costs which was not considered scientific progress . Many papers commented on ABC very negatively . On the other hand , there also appeared papers which tried to selectively pick out concepts from ABC and adapted them to the perceived German needs . For instance , a variant of ABC called ‘ Proze ß kostenrechnung ’ (not to be confused with process costing) proposed a particular accounting for indirect costs . Another current development observable in Germany is the increasing interest in the decision-influencing function of costs in decentralized firms and the implications for the design of cost accounting systems . The roots of this lie mainly in the information economics literature .

There has been much influence of German thoughts in cost accounting abroad : besides German speaking countries such as Austria and (in part) Switzerland , several other European countries like Denmark , Sweden or The Netherlands discussed and used concepts ‘Made in Germany’ . 3 The heavy influence in Scandinavia was due to the fact that some of the first professors of business administration in Scandinavia either were Germans or had been educated at the best German universities . Also Japan had an early tradition of using German accounting concepts . However , judging their impact from the inclusion of German develop- ments in the English-speaking literature the result is still poor . If this Special Section can help in this sense , it has achieved its goal .

John Christensen Alfred Wagenhofer Odense University University of Graz

References

Ewert , R . and Wagenhofer , A ., 1995 . Interne Unternehmensrechnung , 2nd edition , Berlin , Springer-Verlag .

Kilger , W ., 1993 . Flexible Plankostenrechnung und Deckungsbeitragsrechnung , 10th edition (revised by K . Vikas) , Gabler , Wiesbaden .

Kloock , J ., Sieben , G . and Schildbach , T ., 1993 . Kosten - und Leistungsrechnung , 7th edition , Dusseldorf , Werner-Verlag .

Madsen , V ., 1970 . Budgettering , Copenhagen , Teknisk Forlag . Schweitzer , M . and Ku ̈ pper , H . -U ., 1995 . Systeme der Kosten - und Erlo ̈ srechnung , 6th edition ,

Munich , Vahlen . Weber , J ., 1997 . Einfu ̈ hrung in das Rechnungswesen , Band 2 : Kostenrechnung , 5th edition ,

Stuttgart , Scha ̈ f fer-Poeschel .

3 Even Riebel’s approach has been taken up and developed further in foreign countries . An example is the analysis of accounting and bugeting systems by Madsen (1970) , which is in Danish .