Note On `The Determination of Selling Prices'

Abstract

In his paper 'The Determination of Selling Prices', [i] R. C. Skinner suggests that the most surprising aspect of accounting methods revealed by his survey of pricing procedures on Merseyside was the widespread use of variable costing [p. 21 i]. The firms were asked whether they had analysed their costs into fixed and variable elements, and if so, whether they normally made any use of the distinction in setting selling prices. Seventy-three per cent (I22 out of i66) of the respondents said they had made the distinction, and of these, 69 per cent used it in price-determination. Skinner points out that his findings on variable (or direct or marginal) costing are out of line with the results of other British investigations, which are described in a paper of mine [2]. He mentions a number of possible reasons for the discrepancy and concludes that the reason is more likely to lie in the nature of the question asked: 'A non-accounting manager may well not understand the meaning of such a question as Do you use marginal costing? Having never heard this description of the technique, he will probably reply No to the question [p. 2 I 2]. In fact, of the four investigations referred to in my paper, the questionnaires in Sizer's and Goodlad's [1] investigations were completed by accountants; Howe [4] visited the firms referred to in his investigations and interviewed the firms' accountants; and it is probable that accountants completed the questionnaires in the Hart & Prusmann [5] survey because of the technical nature of questions. In this note Skinner's interpretation of his results will be questioned.