Cost accounting in early regulated markets: The case of the Royal Soap Factory of Seville (1525–1692)

Abstract

Regulated markets and state-owned monopolies characterized the economies of many Southern European territories around the end of the Middle Ages and during the Renaissance. Although this economic form was of considerable importance in implementing public policy at the time, investigation into the functioning of cost accounting in such contexts has been consistently neglected in accounting research. In this paper, we examine the role of cost systems in early regulated markets by focusing on the case of the soap production and distribution monopoly in the City of Seville, Spain. In 1423, the King of Castille granted the soap monopoly to the Duke of Alcalá as a reward for his war achievements, but pricing decisions rested in the hands of the local government. Disputes between the Duke of Alcalá and the local government (the parties) about the fair price of a pound of soap were negotiated after the development of tests that replicated the soap production process and determined its cost through complex calculations. Drawing on the insights of institutional sociology, we found that the test and its accompanying cost calculations provided credibility to the parties before their external constituents. Our data also revealed that the parties engaged in active agency with the King of Spain in order to shape the constitutive elements of the tests in their favor. In this way, they were able to manipulate to their own ends the use of newly purchased versus inventoried materials in the soap test and to incorporate into the total cost what present-day terminology would call the opportunity cost of the buildings, investments in inventory and machinery, and various employee expenses not previously considered.