Analysis of cost for pricing: An exploration of the gap between theory and practice

Abstract

Over the years, there has been several discussions over the alleged gap between management accounting theory and practice. As a result, researchers sympathetic to neoclassical economies have sought to rationalize the gap in terms of information economics and have proposed constrained optimisation as the norm. Scapens (1994) and Ahmed & Scapens (2000) have suggested that, the old institutional economics framework might better explain management accounting practice. The old institutional economics originated about the same time as neoclassical economics and in opposition to its rationalization of the gap, it largely rejects rational optimisation as the basis for much of human behaviour and stresses, instead rule following and adherence to custom. This research paper reports on the findings of two case studies undertaken as part of a programme of case studies intended to examine the power of the old institutional economics framework to explain the gap between management accounting theory and practice, in the realm of costing for pricing. The paper concludes that, much observed management accounting practice is difficult to reconcile with ex ante constrained optimisation, but is explicable in terms of conditioning by various institutions in question.