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Abstract: In marginal analysis, there is a tendency to overlook the problems of fixed costs. In multi-product firms, however, there are many possible fixed costs. Such firms attempting to optimize profit under capacity constraints must take into account not only their gross margin but also net profit, i.e., profit after incurrence of various alternative fixed charges. Hirsch and Dantzig proposed the original integer programming solution to the "fixed charge" problem and their approach applies directly to product profitability analysis. Their algorithm is demonstrated in a marketing example and the imputations for accountants of this application of operations research technique are discussed. [ABSTRACT FROM AUTHOR]

Periodic budgeting, as practiced in industry and taught in the accounting curriculum, combines estimates by individual departments in a process of coordinative aggregation. The purpose is to supply management with a financial plan for future operations. Frequently, budgeting is charged with the more ambitious task of finding the most profitable course for an enterprise. If this means selecting a combination of managerial policies which optimizes the long-term profit of the enterprise, the above definition of the purpose of this discipline seems to overstate the potential of traditional budgeting activity. It makes the layman believe that this area of accounting is in a position to determine optimal solutions. Undoubtedly this is not the case since budgeting traditionally neither applies any algorism to optimize the long term profit function nor provides any means for determining and comparing all the alternatives resulting from the innumerable factor and policy combinations feasible for an enterprise.