Managerial Accounting Case Study: Adams, Jefferson, and Pirates

This case study analyzes the historical context of the Barbary Pirates and the challenges faced by the US in the 18th century regarding maritime trade and piracy. The assignment explores the perspectives of John Adams and Thomas Jefferson, examining the costs and benefits associated with different strategies for dealing with the Barbary States. It delves into the concept of relevant costs, including treaty agreements, the cost of inaction, and the expenses of war, as well as the opportunity costs of trade disruption. The analysis considers both monetary and non-monetary factors, such as the potential loss of life and political implications. The study evaluates the suggested alternatives, providing a comprehensive understanding of the financial and strategic considerations involved in resolving the piracy issue and protecting US interests. The case emphasizes the importance of cost-benefit analysis in managerial accounting and decision-making.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................3
Answer to question 3:.................................................................................................................3
Answer to question 4:.................................................................................................................4
References and bibliography:.....................................................................................................5

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Answer to question 1:
Keeping in mind the background of the case and the necessity of negotiation for
resolution of the problem of high sea robbery, Adams suggested three alternatives and he had
also projected costs associated with those three alternatives. The first alternative as suggested
by Mr Adams was to enter into the treaty agreements with those five Barbary States and it
will cost them to five hundred thousand pounds sterling. He also pointed out that the treaty
agreement might not be that much effective as it had been anticipated. The second option as
had been outlined by Mr Adams is to do nothing from the US government’s end. It might
pronounce like there is no costs associated with it, but definitely there is a cost which is being
projected and calculated by Mr Adams rightly (Caplan 2003).
If nothing is done by the US Government for protecting the shipments from the high
sea pirates of those five Barbary States, then the robbery by those pirates will continue and it
will cost a huge damage to the importers and exporters of the US as well as it will cause lives
of sea mans of US. US had a great trade relationship with Portugal and the shipments used to
be moving across the high sea of those Barbary States. If no measures had been taken by the
US Government, then the profit arising from the trade with the Portugal might have been lost.
It would cause a loss to all other trades which had been using the same route for the shipment
of their goods as well as the insurance revenue which would have been earned if the trade
were continued that would also be lost. Hence, all those damages can be considered as the
cost of doing nothing by the US Government for the protection from the Barbary States
(Caplan 2003).
The third option as had been suggested by Mr Adams was the wage war and for that
marines and weapons are required which would cost a huge amount to the US Government.
On the other hand, fighting with them might not ensure the continuation of the trade over the

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same route and at last if the peace treaty might have been entered into, then it would cost the
same amount again. Mainly the opportunity cost of trade have been considered as the cost of
doing nothing and in all the other two situation the same might happen, as it had been
evidenced that despite having a treaty with the Barbary State there had been instances of
robbery and the wage war itself might cause a discontinuation of trade over the high sea
(Caplan 2003).
Answer to question 2:
Jefferson had the only opinion of fighting with the Pirates and to do that he suggested
to acquire weapons and to hire trained personnel. He also said that a team of marine army
will continuously be patrolling over the high sea. He had the thought that, half of the weapons
and army will be kept as reserve and half of them will continuously be patrolling over the
high sea. He projected a cost of 450000 to acquire a fleet of 150 guns and to maintain that an
annual cost of 300 pound sterling would be required. If half of the fleet had been used
regularly and half of the fleet was kept as reserve then the total annual maintenance cost
becomes half of the total annual maintenance costs. Thus if total of 45000 Pound sterling is
required for annual maintenance of 150 guns then 22500 Pound sterling would be required
for half of the fleet. Therefore, the cost projection and calculation by the Jefferson was
justified (Caplan 2003).
Answer to question 3:
Adams had suggested three options to the US Government and analysed and projected
costs related to all those options. The first option he had suggested was to enter into a treaty
for peace with the five Barbary States and the cost of that treaty was only considered as the
relevant cost. In the second option he thought that, if no initiative in this regard was taken by
the US Government then the loos from the trade and commerce or the opportunity costs of

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those trades would be the cost to the state, and lastly, he pointed out that if the state goes for a
fight or war then it would involve a huge cost for the war as well as the opportunity costs for
loss of trade. There are some other costs which are relevant and needs to be considered for all
those analysis. Treaty with the states needs an initial costs but it might not ensure a
completely free zone for the trade and commerce, hence there is a hidden cost of loss of trade
and commerce. In those entire three situations the goods shipped by the traders might get
damaged by the pirates the costs of those goods also need to be considered for the projection.
Therefore, the damaged caused to the ships and shipped goods also need to be considered
(Caplan 2003).
Answer to question 4:
The most important non monetary factors in fighting the pirates must be the lives of
the personnel and the sea men. If the State goes for a war and fighting with the pirates then,
the state may suffer a loss of lives of their army men as well as sea men. On the other hand, it
will create a political unrest and bad image for the counter which may affect their
international trade and commerce relationship with the other countries. Therefore, it can be
suggested to go for peace by entering into the treaty agreement and making more strict rules
and regulations in that treaty agreement which will make those Barbary States liable for any
further incidence of robbery (Caplan 2003).

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References and bibliography:
Appelbaum, D., Kogan, A., Vasarhelyi, M. and Yan, Z., 2017. Impact of business analytics
and enterprise systems on managerial accounting. International Journal of Accounting
Information Systems, 25, pp.29-44.
Brewer, P.C., Garrison, R.H. and Noreen, E.W., 2015. Introduction to managerial
accounting. McGraw-Hill Education.
Butler, S.A. and Ghosh, D., 2015. Individual differences in managerial accounting judgments
and decision making. The British Accounting Review, 47(1), pp.33-45.
Caplan, D., 2003. John Adams, Thomas Jefferson, and the Barbary pirates: an illustration of
relevant costs for decision making. Issues in Accounting Education Teaching Notes, 18(3),
pp.1-1.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Nitzl, C. and Chin, W.W., 2017. The case of partial least squares (PLS) path modeling in
managerial accounting research. Journal of Management Control, 28(2), pp.137-156.