No Blood Money

Accounting

Speaker:Phill Cobbin, University of Melbourne
Date: Wednesday 6 November 2013
Time: 14.00 - 15.30
Location: Kolade Teaching Room, Building One

Further details

When private, commercial interests were engaged, for the first time in Australia, in the manufacture of munitions for profit, the matter of reimbursable manufacturing costs and how best to keep them under control quickly emerged as a contentious issue. Immediately prior to the outbreak of World War 2, the Australian accounting profession, as the repository of state-of-the-art expertise in the relatively nascent discipline of costing, was tasked, through an advisory panel of senior specialists, to advise on how to ensure, on the one hand, private contractors were remunerated in a fair and reasonable manner on commercial terms whilst simultaneously ensuring no unfair advantage was taken by those same private interests. Focusing on the key elements of manufacturing cost, the Advisory Accountancy Panel in the Department of Supply and Development provided advice on labour, material and manufacturing overheads. Importantly, the advice provided about manufacturing overhead involved a specific-identification-of-costs methodology rather than the utilisation of an overhead-expense recovery rate. While the advice on labour and materials complemented extant thinking, the advice proffered on overhead was at variance with the ideas articulated in the contemporary accounting literature. Significant complementary advice was also provided on the critically important related question of incentives to be provided to contractors to maximise efficiency and manage total production costs.Drawing on extensive archival material retained by the National Archives of Australia, this paper describes, through the lens of the reports submitted by the panel, the evolution of ideas that underpinned the professional advice provided to government at the time. In this way it not only adds to the military and accounting historical record but also to the continually evolving history of the development of cost determination and cost control. While the paper is informed by the extensive archival resources available it is also constrained by the same material as it is limited to (i) reports prepared by members of the panel, (ii) correspondence between parties to the arrangements in place, and (iii) other government documents. Working papers and other records of the panel have not survived. The findings of the research are therefore limited to the interpretations and deductions made from the available material. The panel provided important advice at a critical juncture in the nation-wide preparations for the inevitable conflict and despite its relatively short lifespan and partially contrarian approach, it established a legacy of codified advice that was of immense value to munitions manufacturing interests for the duration of the war.