Some Economic Implications of Cost-Plus Pricing.

This article discusses the use of costs as a basis for price determination and the measurement of income. According to the author of the article, same principles and the same considerations which should guide price determination should also guide the cost accountant and the general accountant in measuring the ultimate result of the price policy, that is, in measuring the economic performance of the firm. It is clear that the traditional treatment of overhead does give misleading and incorrect in formation in several cases. Full development of this proposition would require an extensive examination of the theory of accounting, a task clearly beyond this paper. The second problem is the effect of inventory valuation on income determination when a firm produces more than it sells in a given year. This point is simple and most disturbing. Under these conditions, additions to inventories are not counted in costs incurred in that year. This may be all well and good for items of direct costs.