This studyhas been conducted and prepared under the direction of James W. Martin, project director for the University of Kentucky. The research was financed by a grant made by the Small Business Administration, United States Government, under the authority of Public Law 699 (85th Congress).

Only a limited number of copies of this report have been printed. It is available for reference in any of the Small Business Administration offices throughout the United States or at many reference libraries. Copies of the report also may be purchased directly from the University of Kentucky Press, Lexington, Kentucky.

Summaries of this...

This studyattempts to fill a gap in the literature of small business management. Previously there have been few studies—particularly empirical studies on the individual firm—of the role of accounting in small business decisions.¹ There is a body of prescriptive literature in the areas of financial and cost accounting. But, to our knowledge, this is the first large-scale empirical examination of how small firms actually use accounting data in making operating decisions.

This study is concerned simultaneously with prescription and description. It investigates the role accounting can play, seeking to establish norms of reasonable behavior. It also determines...

It is generallyrecognized that both accounting data and logic of economics enter into business decisions. Exactly what their respective contributions are or what they potentially might be is, however, not clearly defined. This chapter attacks the problem of definition, not by an empirical analysis of actual cases but by ana prioriexamination of functions. Accounting provides the data while managerial economics offers a system for handling those data in making decisions; such, roughly, is the nature of the relationship between accounting and economics. This study examines the relationship between accounting and economics in small business firms and evaluates...

At firstglance one might well wonder at the significance attached to plant nurseries by giving over a whole chapter to discussing them. But in the nursery industry the contribution of accounting to decisions is of such special interest that it deserves a full discussion. In some respects nurseries stand in an extreme position—one at which the usual accounting methods appear to offer the least to decision making. The question is whether a development of new accounting methods or of new tools for the systematic application of economic analysis is warranted in the nursery industry.

This chapter covers only...

In conductinghis business each retailer has problems that are unique to the operation of his own firm, and retailing deals with a diverse array of products, each requiring slightly different handling by management.¹ Yet there are kinds of decisions common to the whole area. Typical of important decisions for successful retailing are: determination of what and how much to buy; pricing; establishment or abandonment of merchandise lines; total promotional effort; and allocation of promotional effort. Questions of buying and pricing are probably the most fundamental decisions which the retailer must make, and therefore they form the center of this...

Small manufacturingfirms make three important classes of decisions which are considered in this chapter: (1) product diversification, (2) investment, and (3) pricing. These firms represent a variety of types: special order and continuous production, single and multiple products, keen competition and local monopoly. The central interest of this discussion is the kinds of accounting data that managements use for the analysis of the three types of decisions.

The following generalizationsapply to accounting and decision making in manufacturing. 1. There is little evidence that accounting data are important to product diversification decisions of firms included in this study. The...

In the context of printing, we take up an issue which has broad implications for industries in general: under what circumstances is it advantageous to program accounting data for one kind of decision? The discussion of this issue is based on an analysis of three topics: (1) the implications of accounting methods which develop cost data for pricing decisions; (2) case studies of pricing decisions of actual printing firms, with emphasis on the role of accounting; and (3) the use ofad hoceconomic analysis for other types of decisions.

We startwith some generalizations based both upon the literature...

In thischapter we undertake a more direct discussion of incremental analysis, covering cases not included in previous chapters. Incremental reasoning is quite simple to apply; it is understandable and strongly rooted in common-sense. But it does not offer a panacea for the inherent uncertainties of a dynamic business world.

The incremental principle discussed in Chapter 1 states that a course of action is sound if expected added revenue exceeds expected added cost. We believe that estimates of such changes in costs and revenues are easy to make, once the basic principles are understood. They involve less dificulty than the...

The centralpurpose of this study is to evaluate the role of accounting in the decisions of small firms. We do not concentrate on particular kinds of decisions; rather, we examine a number of different types within the context of particular industries. In this chapter, however, we emphasize two particularly crucial matters in small firms—investment and pricing decisions.

This chapter serves two purposes. One is to bring together in one place the analysis of investment and pricing decisions, which up to this point has been scattered over a series of chapters.¹ The second is to formulate general conclusions on...

Accountingis one of the greatest factors in motivating management to initiate the decision-making process. Managers commonly have predetermined notions of what constitutes satisfactory accounting results, and if they are dissatisfied with current results, they exhibit a homeostatic tendency to search for improvements. The income statement is particularly important in this respect; if the net income figure falls short of aspirations, new alternatives are sought. Accounting ratios and standards also enable businessmen to compare actual results with those in other firms or with established norms. Many of our cases illustrate the homeostatic role of these ratios and standards.

To turn...