Standard Costs, Standard Costing and the Introduction of Scientific Management and New Technology into the Post-Second World War Sunderland Shipbuilding Industry

Abstract

In their study of the shipbuilding, engineering and metals industries of the West of Scotland, c. 1900–1960, Fleming et al. (2000: p. 196) concluded that ‘standard costing and budgetary control hardly made any impact at all in the engineering-related industries of the West of Scotland and that this … was correlated with the non-adoption of Scientific Management’. Fleming et al. encouraged further research to determine if this pattern of adoption was replicated elsewhere during the period. In this manner, the current research focuses on the post-Second World War development of standard costs and standard costing in Sunderland, a shipbuilding town of international importance on the north-east coast of England. Although the availability of company archives is somewhat limited, we nevertheless found evidence that at least one leading shipbuilding firm undertook major modernisation and reorganisation programmes, comprising the adoption of the new technology of welding, during the study period. Allied with these radical changes, the firm employed scientific management methods and utilised standard costs, but it did not employ full systems of standard costing and variance analysis. These costing developments were built into shipbuilders' traditional information systems based on the use of cost and output curves. However, the craft administration of production remained common in many shipbuilding firms and precluded developments in scientific management and standard costing.

Keywords:

• Scientific management
• standard costs
• standard costing
• shipbuilding

Acknowledgements

We wish to thank the two referees for their detailed and careful reviews of this paper. Also we thank Trevor Boyns for his constructive comments on the paper in general and the Introduction in particular. Furthermore, we acknowledge the helpful comments of participants at the Newcastle Accounting and Business History Conference, University of Newcastle upon Tyne, 27 June 2005.

Notes

1. Hopper et al. (1986) also notes that the dominance of engineers was an important factor in failures to implement advanced systems of financial control.

2.Standard cost can be defined as ‘An estimated cost, prepared in advance of production or supply, correlating a technical specification of materials and labour to the prices and wage rates estimated for a selected period of time, with the addition of the overhead expenses estimated for the same period within a prescribed set of working conditions’ …

Standard costing can be defined as ‘The preparation of standard costs and their use to clarify the financial results of a business, particularly by the measurement of variances of actual costs from standard costs and the analysis of the causes of the variations for the purpose of maintaining maximum efficiency by executive action’.

Budgetary control can be defined as ‘The establishment of departmental Budgets relating to responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results, either to secure by individual action the objective of that policy or to provide a basis for its revision’.

3. Unfortunately, we have been unable to trace biographical information on Hodges, but consider that references to him in the Transactions of the Institution indicate that he was intimately involved in the north-east England shipbuilding industry. For example, following the debate, Dr H. Orenstein, a consulting engineer, notes (Transactions, Vol. 63: D61) that Hodges had been ‘in an authoritative position to enforce the acceptance of new methods contrary to customary practice in shipbuilding’.

4. We note that Fleming et al. (2000) excludes references to the contemporary cost accounting literature. Furthermore, Boyns & Edwards (1996: p. 29) state that, ‘If new techniques were developed and learnt on-the-job, and disseminated by the interchange of information and the movement of personnel, then this would explain to some extent not only the absence of an industrial accounting literature but also why a study of the literature need not be an accurate guide to accounting practice’.

5. Other than Doxford, board minutes are available only for Laing (Board Minute Book No. 3, TWAS: Unlisted); these cover the post-War years up to the mid-1950s and indicate piecemeal additions to plant and machinery, but do not contain any discussion on modernisation or re-organisation.

6. We are grateful to Referee A for this insight.