Academic journal article The Accounting Historians Journal

Using Distribution Costs in Decision Making at the Dennison Manufacturing Company, 1909 to 1949

Academic journal article The Accounting Historians Journal

Using Distribution Costs in Decision Making at the Dennison Manufacturing Company, 1909 to 1949

Article excerpt

Abstract: Early in the 20th century, predating most academic and practitioner literature, Dennison Manufacturing's top management recognized that certain kinds of distribution costs, normally treated as part of general overhead and allocated based on prime costs, were highly relevant for product-costing and pricing decisions. They pulled as many identifiable direct costs of distribution as possible out of the general overhead pool and assigned them to the appropriate product lines as extra information for the managers of those lines. However, these off-book assignments of costs were not fully understood and caused misunderstandings for many years. New archival evidence allows us to see the frustrations of managers who wanted to understand and use this information and how they attempted to solve these problems.

Dennison Manufacturing Company, now a subsidiary of Avery-Dennison, was founded in the mid-19th century. During the first half of the 20th century, the period of this study, Dennison manufactured a range of paper products including tags, boxes, holiday goods, crepe paper, and seals and labels. Dennison produced some five or six thousand items within those product lines, half of them special orders and half throughput, for a varied customer base. Vollmers [1993] discussed the company's treatment of distribution costs (both order-filling and order-getting costs) based on published articles by Dennison's statistician, E.S. Freeman [1929, 1933]. The company's efforts within the area of distribution costing appeared to be on the cutting edge of this type of cost analysis. The subsequent discovery of materials from the company's archive relating to order-filling costs, dating from as early as 1909, enriches that previous research and is the focus of this work. Order-getting costs, such as advertising and sales expenses, were handled quite differently by the company because of their speculative nature and are therefore not considered in this paper.

First called "supplementary" and later "secondary" costs by company managers, order-filling costs arose from the clerical, warehousing, filling, packing, shipping, and collection activities on customer orders -- costs incurred both prior and subsequent to the manufacturing process. Some of these costs, managers discovered, were material in size and could be directly traced or were reasonably allocable to commodity (product) lines. Accordingly, Dennison's statistical and accounting departments put an immense effort, in terms of personnel and time, into tracing, analyzing, and distributing these costs to achieve a better understanding of both how they were driven and to which commodities they were attributable. The purpose of this research is to describe the evolution of this work at Dennison and to highlight the problems the firm faced. The work begins with a brief description of the Dennison archive, followed by a literature review, the Dennison story, and a conclusion.

THE DENNISON ARCHIVE

The archive of Dennison Manufacturing is located in Framingham, Massachusetts, in a storage room in the administration building of the company. Where once the company employed professional historians to maintain and develop the company's archive, it has now sunk to quite a low state. The room is filthy, doubtlessly accelerating the deterioration of the delicate onionskin paper used for correspondence. The documents are probably only being preserved because nobody is interested enough to discard them. There is no general indexing system for the collection as a whole. Files, however, are in file cabinets; some are even organized alphabetically. The materials used in this study were found in manila file folders entitled "Secondary Costs," "Costs," "Costing Conference," and "Accounting Committee Minutes." The contents of these files overlap considerably. The researcher cannot depend upon all references to a desired topic being contained in any one folder. Other file drawers are dedicated to "Factory Cost Reports" or "Treasurer's Reports," organized by date. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.