Cost Accounting for War: Contracting Procedures and Cost-plus Pricing in WWI Industrial Mobilization in Italy

The aim of this paper is to explore the role played by cost accounting in Italy's Industrial Mobilization system and in the largest firm manufacturing weaponry, Ansaldo of Genoa, during WWI. While in other countries such as the UK and the USA, efficiency in buying and managing war material was an important part of military strategy, in Italy, various factors impeded it. This paper focuses on contracting procedures adopted by the Ministry of War and Ministry of Munitions and looks at the cost accounting practices in Ansaldo to see how costs were determined and how prices were set. We found a paradox. On the one hand, despite knowledge of costing, the government did not impose cost controls on the producers of war material, nor on their profit rates. On the other hand, examining Ansaldo's cost sheets we discover they underestimated their production costs leading the firm to losses despite its favorable political position. This paper contributes to the theoretical debate about the relationships between accounting and war in the Italian context where lobbying, collusion, bribery and private interests dominated the administrative behavior of public and private actors instead of efficiency, accountability and honesty.