Misused Product Costing in the American Railroad Industry: Southern Pacific Passenger Service between the Wars

Abstract

Reflecting recent studies that have highlighted the importance of product cost accounting, this article traces the resistance of American railroad managers to the tool, despite growing pressure from academic and engineering economists. This study reveals widespread misunderstanding among managers about the nature of railroad costs, particularly misconceptions about the proportion of fixed and variable costs and the definition of direct costs. It illustrates the impact of these misapprehensions through a detailed examination of Southern Pacific's interwar passenger strategy.