|
Texts &
materials ~
Course
objectives specific to BUSA 323
Assignment Schedule ~
Summary of graded assignments
Catalog
description:
Cost
Accounting and Control Systems is a critical examination of systems for
product costing and managerial control. Case analyses deal with a
variety of traditional and non-traditional product and service costing
systems to achieve basic objectives of inventory valuation, planning,
and operational control. Emphasis on developing the skills to critique
cost systems and to understand the relationship between cost systems and
production/service operations, organizational strategy, and performance
evaluation and control systems. Prerequisites: MATH 128 (or MATH
151 and 230); CSCI 220; STAT 231; ECON 101; BUSA 202, 203; 3 credits.
This course is about
two sets of systems within organizations--cost accounting systems
and managerial control systems:
 | cost
accounting
is basically about developing financial models which replicate the
economic impact of the production processes within an organization.
Cost systems ultimately enable us to determine the cost of products
or services for inventory valuation and financial reporting. We will
use Excel to create models for cost allocation for a variety of
organizations [e.g., discrete product manufacturing (think custom
made furniture), continuous process production (think making and
packaging Cheerios), or services (a law firm)] and using different
cost distribution procedures [traditional allocation and
activity-based costing]. |
 | managerial
control systems
are the systems used
by managers to ensure that resources are obtained and used
effectively and efficiently in achievement of the organization's
objectives. However, cost accounting systems and managerial control
systems may work at cross purposes. We will examine situations in
which the cost accounting systems have perverse and
counter-productive effects on managerial control efforts.
Understanding these behavioral impacts is a critical element in
systems design. |
While basic familiarity with financial
statement preparation and organization is essential, please note that
this is not a bookkeeping course. Familiarity with basic
financial and managerial accounting terminology is assumed. BUSA 202
(Financial Accounting) and BUSA 203 (Managerial Accounting) are
prerequisites for this course. BUSA 323 should not be taken
concurrently with BUSA 203. An additional requirement for successful
completion of BUSA 323 is proficiency in the use of a microcomputer
spreadsheet (e.g., Excel); students lacking proficiency in
spreadsheet usage usually find the major assignments in this course
overwhelming. Students who lack the requisite spreadsheet
capability should not enroll in this course.
Return to top of page
Texts and materials:
There is no text for the course. We will be
using a series of cases and explanatory notes to cover the material in
the course.
|
The following materials are available for download in Acrobat
format at no charge
here. |
 | A Brief Introduction to Cost
Accounting |
 | Activity-based Costing and
Capacity |
 | Anagene, Inc. |
 | Analyzing Standard Costs |
 | Assigning Support Department
Expenses to Production Cost Centers (A) |
 | Birch Paper |
 | Chadwick Inc.: The Balanced
Scorecard |
 | Classic Pen Co.: Developing
an ABC Model |
 | Cost System Analysis
|
 | Dakota Office Products |
 | Introduction to
Activity-Based Costing |
 | Introduction to Cost
Accounting Systems |
|
 | Introduction to
Responsibility Accounting Systems |
 | Lehigh Steel |
 | Maverick Lodging |
 | Midwest Office Products
|
 | Miniscribe Corporation |
 | San Francisco Bay Consulting
|
 | Shun Electronics |
 | Superior Manufacturing
Company |
 | Time-Driven Activity-Based
Costing |
 | Variance Analysis and
Flexible Budgeting |
 | Xyberspace Consulting |
|
|
Available in the PLU bookstore
[in alphabetical order]: |
 | EntertainmentNow.com |
 | Lambeth Custom Cabinets |
 | The Squeaky Horn
|
|
 | Westmount Retirement Center |
 | Xyberspace Consulting
|
|
I strongly recommend that you get all your cases promptly [=TODAY]. If
you wait until the night before the case is due and you cannot get to
the Harvard Website or bookstore has closed for the day, you will not be
a happy camper. No extensions will be granted "because I couldn't get a
copy of the case...," or the equivalent.
Some materials will be available for
download directly from the PLU server; hyperlinks will be provided in
the assignment list.
Memory stick:
If you do not own a memory stick, jump drive, pen drive or similar
device, get one--the bigger the capacity the better [you'll use the
extra capacity eventually, if not in this class]; at a minimum I suggest
a 1.0 gig model. USB 2.0 compatibility is standard. All of our work this
semester will require use of Excel, and it will be essential to have
easy access to your work in class, at home, and wherever else you work
on a computer. I also recommend that you put your name on your memory
stick with a self-adhesive label. I strongly
recommend that you bring your memory stick to class daily, simply to
ensure that you have it when you need it. I also recommend that you back
up your memory stick to your hard drive or other media daily. Memory
sticks do fail, and they can get lost.
Return to top of page
Course
objectives specific to BUSA 323
Cost accounting and control systems is a
professional level course in the accounting concentration; it is not
required, but is strongly recommended. My single overriding objective
in teaching this course is to have each of you develop a clear
understanding of the role of cost accounting and control systems
accounting in contemporary organizations, and the ability to apply that
knowledge in a practical, professional setting. This means that
students who complete this course will be able to do the following
-
Product and service costing
- Develop and analyze the costs of products or
services in a variety of environments
-
Allocate service department overhead
-
Determine the values of inventories and cost of
goods sold
-
Explain the strategic and managerial impact of
alternative product costing systems
-
Activity-based costing (ABC)
-
Calculate product or service costs using ABC
-
Explain the theoretical rationale for the use of
ABC
-
Compare and contrast traditional control systems
with those based on strategic cost management, ABC and Theory of
Constraints
-
Performance evaluation
-
Evaluate organizational and managerial
performance; recommend appropriate managerial action
-
Establish transfer prices which are consistent
with organizational strategy
-
Compute and interpret profit and standard cost
variances; explain the implications of the variances for
decision making and control; recommend appropriate managerial
action
-
Explain the strategic implications of managerial
control systems
Throughout the course
we will be concerned with the concepts and mechanics underlying cost
allocation, product costing, and cost analysis. In other words, at least
within the constraints imposed by the classroom setting, you will learn
to do cost accounting. Additional, equally important
concerns are (1) the analysis and evaluation of the impact of
alternative cost accounting procedures on decision making, and (2) the
relationship between cost management and business strategy.
An additional
objective of this course is to dispel the common misconception that
public accounting is the only place where the action is, and that
positions in cost or managerial accounting are inherently less
interesting or rewarding than those in auditing. In fact, cost
accounting is a field of exciting developments in which you can play an
important role as a professional.
In practical terms, what you take away from
this course will be a function of (i) your aptitude for financial
analysis, (ii) your aspirations regarding the subject matter, and (iii)
the level of sustained effort you put into the course. Success in the
course depends on your ability to "put the numbers together," as well as
on your ability to understand what "lies behind the numbers." The latter
is often addressed in the form of questions such as "Why?" "Who cares?"
"So what?" or "What difference will it make?" The inability or
unwillingness to address such questions is perhaps the most common
characteristic of students who perform poorly in this course.
Return to top of page
Assignment schedule
FYI #1: You will note that there are three catch up days
scheduled. Please do NOT assume that it is OK to get behind because
these are in the schedule. This is a demanding, professional level class
and I have purposely included these to ensure that we do cover the
assigned material. If we can possible "save" the catch up days, it will
be to our advantage to do so.
FYI #3: Only the assignments
designated as
Graded
Assignment are to be handed in.
FYI #2: Some
assignment will be designated for electronic submission; for an
assignment that is to be submitted electronically, you are to send your
Excel file to me at
myersgm@plu.edu. For each such assignment I will specify a subject
line for the email. Because I will establish email filters to divert all
files for an assignment to a specific folder, you MUST use that subject
line [and ONLY that subject line] in your message. Also, you MUST use
your last name and the name of the problem as the Excel filename. For
example, if your last name is Smith and the case is Baker Engineering,
your filename would be smithbaker.xls. These procedures are essential to
ensure that [1] your message does not wind up in the junk mail folder,
and that [2] I can differentiate your file from everyone else's.
|
Date |
Day |
Session No. |
Readings, problems, cases and
other assignments
[HBS = Harvard Business School materials; Darden = Darden
Business School materials; Ivey = Ivey Business School
materials; other materials are downloadable as indicated] |
|
02/05 |
R |
1 |
Course introduction; review of basic
concepts from managerial accounting. The slides I will use in
class are available at
cost accounting intro Power Point slides |
|
02/10 |
T |
2 |
Read
for today's class: "A Brief Introduction to Cost Accounting"
[HBS] and "Introduction to Cost Accounting Systems" [HBS];
review Power Point slides from 02/05 class session; read
Rules for Good Spreadsheet Practice
Today's case: Superior Manufacturing Company [HBS]
Case objectives:
review basic concepts
from managerial accounting; introduce fundamental cost
accounting concepts and issues; relate cost accounting
information to decision making
Graded
Assignment--take home quiz:
[IGNORE the assignment questions on page 4 of the case]:
- Define the following terms:
| a. cost object |
b. cost pool |
c. cost driver |
d. fixed cost |
e. variable cost |
| f. semivariable cost |
g. direct cost |
h. indirect cost |
i. standard cost |
j. actual cost |
| k. budget |
l. variance |
m. differential cost |
n. contribution margin |
o. gross margin |
- Explain clearly how
Superior's cost accounting system works.
- Refer to case Exhibit 2. I have reproduced the numbers
for you at superior
data sheet.xls. Based on the data given, do you
agree with the decision to keep product 103? Why?
Warning: Do NOT total the per unit variable costs in
Exhibit 2 to calculate the per unit contribution margins.
There are rounding errors which will be compounded if you do
this and the resulting numbers will not reconcile with the
case data.
- Calculate Superior's breakeven point in units for the
company as a whole and for products 101, 102 and 103,
assuming that all products are sold in the same mix as in
2004.
- Should Superior lower the price on Product #101 as of
January 1, 2006? Why or why not?
- Why did Superior's profitability improve during the
January 1 - June 30th, 2005 period
Agenda for today: continue
review of managerial accounting concepts |
|
02/12 |
R |
3 |
Read for today's class:
"Cost Systems Analysis" [HBS]
Today's case: Lambeth Custom Cabinets [Darden]
Case objectives: gain practice in recording costs in a
simple job order cost system; relate cost accounting information
to decision making.
Assignment questions: Complete assignments 1 and 2 on
page 3 of the case. Note: the "Labor" T-account is a liability,
not an expense account. Also, assume that the "All other assets"
account is essentially the cash account.
Agenda for today: continue review of basic concepts in
the context of the Lambeth Custom Cabinets case |
|
02/17 |
T |
4 |
Today's Case: Shun
Electronics [Darden]
Case objectives: develop skill in articulation of a cost
accounting system's design, including the specification of
overhead pools and the choices of allocation bases. The case
also provides practice in calculating overhead rates. Heads
up: As will be true for all the cases we work this semester,
understanding where the numbers come from is critical. Work
through the exhibits carefully.
Assignment questions:
- Case Exhibit 1 refers to a 200%
overhead rate for the Fabrication Department. Demonstrate
your understanding of the overhead allocation process by
recalculating the 200% rate. In other words, "prove" that
the 200% rate is correct. Also, where does the M$6.00
overhead cost of the PS model come from?
- It is impossible to understand what
the cost accounting system looks like [or should look like]
if you do not understand the production process. What does
the production process "look like?" Sketch out a diagram.
- Recreate the 291% overhead rate
applied to the radios coming through Section 1 of the
Fabrication Department.
Assume for the moment that
you had not seen case Exhibit 3 with the recalculated
overhead rates. Given the facts of the case and reasonable
use of your imagination, would there be an a priori
justification for redesigning the cost system? Focus
particularly on the Fabrication Department.
Agenda for today: a more
intensive look at cost allocation |
|
02/19 |
R |
5 |
Read for today's class:
"Assigning Support Department Expenses to Production cost
Centers (A) [HBS]
Today's Case: Baker Engineering; download file
here
Case objectives: develop skill in modeling cost systems
using Excel. Careful attention to the details in the case and
the spreadsheet model will ensure that you understand where the
numbers come from, what they mean, and what role they play in
calculating product costs.
Graded
Assignment: You
have the solution to the Baker Engineering assignment in the
Power Point slides we used in class. Your assignment is to
REPLICATE the entire Baker Engineering cost accounting model in
Excel and reproduce the numbers. It may be tempting to pass this
off as so much busy work, but those who do will find that this
is a slippery slope, at the bottom of which is a deep hole
filled with D and F grades.
Agenda for today: introduce the two-stage model as applied
to discrete products and services |
|
02/24 |
T |
6 |
Agenda for today: continue
discussion of the two-stage model; hands on work on Baker
Engineering as needed; begin work on Toco Hills University [see
assignment for 2/26] if time permits |
|
02/26 |
R |
7 |
Today's case: Toco Hills
University cost allocation case [download the Toco Hills case
here]
Case objectives:
The Toco Hills case provides practice in modeling cost
allocations, particularly the step-down method of allocating
support department costs. After completing the assignment, you
should be able to create step down allocations for most any
situation. The case also facilitates thinking about the ethical
aspects of cost allocation.
Assignment: The Toco Hills assignment questions are as
follows:
- Based on the original ordering of the
support centers, determine the total cost of job #96-23.
- Based on the revised ordering of the
support centers, determine the total cost of job #96-23. Did
the reordering have a significant impact?
- Discuss the ethical issues involved
here.
- Aside from ethical concerns, why else
might there be a reluctance to shift costs by arbitrarily
ordering support centers?
- If the allocation using the
alternative ordering were publicized in the media, would
there be problems or controversy.
FYI: The authors of this
case include the following comment in the teaching note: "Students
should be prepared to spend about three or four hours working on
this case." Forewarned is forearmed.
Agenda for today Allocation of support department costs to
discrete jobs |
|
03/03 |
T |
8 |
Catch up day: agenda to be
announced; we MAY save the catch up day for later and move
directly to the assignment for March 5. |
|
03/05 |
R |
9 |
Graded assignment:
take home exam:
Westmount Retirement Residence [Ivey]
Case objective:
After completing
the Westmount case, you will be able to evaluate alternative
allocation bases. The case also provides experience in the use
of allocated costs in managerial decision making--specifically
pricing of services.
Assignment:
- As Roswell, evaluate the strengths
and weaknesses of the current costing system at Westmount.
- Using the 2005 cost information [see
case Exhibit 4], design a new costing system for Westmount,
taking into account the three suite options and the three
levels of required patient care. What is the new cost per
patient under each of the options?
How useful is the new
information to Roswell for pricing purposes? What prices
should Roswell recommend be charged for the various suite
options and for the various levels of required patient care?
|
|
03/10 |
T |
10 |
Read
for today's class: "Introduction to Activity-Based Costing"
[HBS]
Today's case: Classic Pen [HBS]
Case objective: The Classic Pen case provides a basis for
understanding the conceptual foundation for activity-based
costing and the mechanics of derivation of ABC costs.
Assignment: Reproduce Exhibits 1 and 2 in Excel.
Calculate the revised product costs for the four pens, based on
the activity information collected by Dempsey. What actions are
stimulated by the ABC product costs?
Agenda for today's class: introduce activity-based
costing |
|
03/12 |
R |
11 |
Today's case: Quality Dairy Products [Download
here]
Case objective: Reinforce the concepts underlying
traditional product costing and the conversion to ABC in a
manufacturing setting
Assignment:
- Why do you think Quality selected pounds of butterfat as
an allocation basis? Would you suggest a different
allocation basis?
- Using cost estimates from the existing system present in
Table 2, would you accept the McDonald's order? Why?
- Perform a relevant cost analysis [i.e., determine the
incremental cost per gallon] for the McDonald's order. What
is the minimum price Quality can charge McDonald's and still
increase net income by $0.05 per gallon? [Some assumptions
may be necessary.
- What is Quality's basic mix strategy? Is the McDonald's
order consistent with this strategy? Explain why or why not.
- What are the consequences of the current allocation
procedure? What suggestions [other than implementing ABC]
would you make to Mr. Smith about improving the product
costing system used to determine target prices?
- Without considering the impact on product costs of the
McDonald's order, recalculate the cost of 10% and regular
milk shake mix based on your answers to questions 1 and 5,
above.
- Select an ABC driver for each cost pool that applies to
the mix business. Recalculate the ABC cost per gallon for
the McDonald's order. Would your decision to accept or
reject the order change? Why or why not?
Agenda for today: continue
discussion of ABC |
|
03/17 |
T |
12 |
Today's case: Dakota Office
Products [HBS]
Case objective: The Dakota Office Products case provides
practice in applying activity-based costing to a relatively
simple setting. The case also facilitates a focus on the
managerial implications of the information derived from the ABC
data.
Graded Assignment [alternative to Midwest
Office Products]: Your assignment questions for the Dakota
Office Products case are as follows:
- Why was Dakota's existing pricing system inadequate for
its current operating environment?
- Develop an activity-based cost system for Dakota Office
Products (DOP) based on Year 2000 data. Calculate the
activity cost-driver rate for each DOP activity in 2000.
- Using your answer to Question 2, calculate the
profitability of Customer A and Customer B.
- What explains any difference in profitability between
the two customers?
- What are the limitations, if any, to the estimates of
the profitability of the two customers?
- Is there any additional information you would like to
have to explain the relative profitability of the two
customers?
- Assume that Dakota applies the analysis done in Question
3 to its entire customer base. How could such information
help the Dakota managers increase company profits?
- Suppose that a major customer switched from placing all
its orders manually to placing all its orders over the
internet site. How should this affect the activity cost
driver rates calculated in Question 2? How would the switch
affect Dakota's profitability?
Agenda for today: continue
discussion of ABC |
|
03/19 |
R |
13 |
Read for today's class:
"Time-Driven Activity-Based Costing" [HBS]
Today's case: Midwest Office Products [HBS]
Case objective: Midwest Office Products extends the ABC
analyses we have done to date by incorporating time-based ABC.
Graded assignment [alternative to Dakota Office Products]:
Your assignment questions for the Midwest Office Products case
are as follows:
- Based on the interviews and data in the case, estimate:
- The cost of processing cartons through the facility
- The cost of entering electronic and manual customer
orders
- The cost of shipping cartons on commercial carriers
- The cost per hour for desktop deliveries
- Using this cost driver information, calculate the cost
and profitability of the five orders in Exhibit
2. Compare these costs and the profitability
to those calculated by Midwest's existing costing system.
- Explain the difference in profitability of the five
orders calculated by the ABC system and the company's
existing cost system.
- Based on your analysis above, what actions should John
Malone take to improve Midwest's profitability?
- What issues, barriers, or concerns arise in your
organization for building an ABC model that calculates the
cost and profitability of products and services?
Agenda for today: continue
discussion of ABC |
|
Spring break [3/24 & 3/26] |
|
03/31 |
T |
14 |
Read for today's class:
"Analyzing Standard Costs" and "Variance Analysis and Flexible
Budgeting" [HBS]
Today's case: Widget Works [download
here]
Case objective: Widget Works provides a comprehensive
example of reconciliation between budgeted and actual net
income. There is enough information in the case to provide
opportunity for speculation on the reasons for the variances.
Students gain practice in modeling the required analysis and
interpreting the results, including the potential reasons for
the variances.
Graded assignment: As with Baker
Engineering, you have the solution to this problem, which is
illustrative of several case we will be covering. Replicate the
Widget Works model in Excel.
Agenda for today: Analysis of variances, part 1: development
of patterns for analysis; as with the Baker Engineering model,
you need to reconstruct the Widget Works analysis in Excel;
ignoring this will lead to slippery slope with a really deep
hole at the bottom. |
|
04/02 |
R |
15 |
Read for today's class: "Introduction
to Responsibility Accounting Systems" [HBS] [read p. 1 through
the top half of p. 10]
Today's case: continue with Widget Works as needed
Agenda for today: Analysis of variances, part 2 |
|
04/07 |
T |
16 |
Today's case: Squeaky Horn
[Darden]
Case objective:
Squeaky Horn provides an interesting setting in which to develop
your skills in variance analysis and income reconciliation.
Assignment: Your assignment questions are as follows:
- Conceptually, what specific factors
are likely to explain the difference between planned and
actual results for the Squeaky Horn?
- Flex the budget. Prepare a revised
budget retaining all prior planning assumptions, but using
the total actual number of jobs the Squeaky Horn worked on
[i.e., 4,405].
- Prepare a reconciliation of planned
versus actual profits buy quantifying in dollar terms, all
significant contributing factors. Hint: What factors did you
identify in question 1?
- How do the different compensation
arrangements at the Squeaky Horn affect profits?
- What changes should Decker and his
partners make based on the results of your analysis?
Agenda for today: continue
with variance analysis; development of patters for analysis in a
more complex setting |
|
04/09 |
R |
17 |
Today's Case: Squeaky Horn,
continued |
|
04/14 |
T |
18 |
Catch up day; assignment to be
determined; we MAY save the catch up day for later and move
directly to the assignment for April 16. |
|
04/16 |
R |
19 |
Take home exam:
EnterntainmentNow.com [Darden]
Case objective: The EntertainmentNow.com case should
reinforce your understanding of variance analysis and profit
reconciliation in a complex setting.
Graded assignment--take home exam [groups of 2]:
- Conceptually, what are the factors
that explain the difference between planned and actual
results?
- Prepare a flexible budget for
EntertainmentNow.com for the past year, flexing solely on
total actual units sold.
- For each factor you identified in
Question 1, quantify the impact on the net loss per item
sold.
Assume that
technology and content, general and administrative, and
depreciation and amortization costs are fixed costs that
total $73.7 million annually. Based on
EntertainmentNow.com's current sales revenue, cost of goods
sold, fulfillment expenses, and marketing, what are
EntertainmentNow.com's breakeven sales in units? Is this
level of sales realistic? Why or why not?
|
|
04/21 |
T |
20 |
Read for today's class:
"Activity-Based Costing and Capacity" [HBS]
Today's case: Anagene [HBS]
Case objective: develop a working understanding of the
impact of the costs of excess capacity on cost driver rates
Assignment:
- Work the Youngstown Products
numerical example: Youngstown Products, a supplier to the
automotive industry, had seen its operating margins shrink
below 20% as its OEM customers put continued pressure on
pricing. Youngstown produced four products in its plant and
decided to eliminate products that no longer contributed
positive margins. Details on the four products are provided
below:
|
Products >>> |
A |
B |
C |
D |
Total |
|
Production volume [units] |
10,000 |
8,000 |
6,000 |
4,000 |
|
| Selling
price |
$15.00 |
$18.00 |
$20.00 |
$22.00 |
|
|
Material/unit |
$4.00 |
$5.00 |
$6.00 |
$7.00 |
|
| DLH/unit |
0.24 |
0.18 |
0.12 |
0.08 |
|
| Total
DLH |
2,400 |
1,440 |
720 |
320 |
4,880 |
| Plant
overhead |
|
|
|
|
$122,000 |
| DLH
rate/hour |
|
|
|
|
$30.00 |
Youngstown
has a traditional cost system. It calculates a plant-wide
overhead rate by dividing total overhead costs by total
direct labor hours. Assume, for the calculations below, that
plant overhead is a committed (fixed) cost during the year,
but that direct labor is as variable cost.
- Calculate the plant-wide overhead rate. Use this
rate to assign overhead costs to products and calculate
the profitability of the four products. The assignment
spreadsheet provides a starting point for your
calculations, with some data and formulas already
supplied.
- If any product is unprofitable with this cost
assignment, drop this product from the mix. Recalculate
the overhead rate based on the new total direct labor
hours remaining in the plant. Apply the new overhead
rate to the remaining products.
- Drop any product that is unprofitable with the
revised cost assignment. Repeat the process, eliminating
any unprofitable products at each stage.
- What is happening at Youngstown and why? How could
this situation be avoided?
- What has caused the fluctuating margins for Anagene's
cartridges?
- Should Kelly even be concerned with the assignment of
overhead costs to cartridges and gross margins that include
allocated overhead? Why not use contribution margin (selling
price less variable costs, primarily materials) for
management decision-making and reporting?
- What approach do you recommend that Daniel Yeltin adopt?
For your recommended approach, what will be the cartridge
product costs and margins?
- Suppose sales in 2001 equal 26,000 units, as budgeted in
January, and that actual manufacturing expenses turn out to
equal budgeted expenses. Prepare an income statement for the
year (just include the manufacturing expenses) that will
help senior management and the board understand the
economics of cartridge production in 2001.
Agenda for today's class:
discussion of the impact of capacity usage on product costs. |
|
04/23 |
R |
21 |
Read for today's class:
Today's case: Lehigh Steel case [HBS]
Case objective: The Lehigh Steel case provides an
excellent opportunity to develop your understanding of standard
costing, ABC, the Theory of Constraints. Standard costing is
what they are using now. ABC and TOC provide competing
alternatives for evaluating Lehigh's products and making
decisions about which ones should be retained or discontinued.
Here are some hints, notes and things to think about:
 | The Excel work on this case
is extensive. Since there is no particular benefit to
repetitive data entry, I will distribute an Excel file with
the tables already built. [Download
here] The Excel capability that is required is not
particularly sophisticated, but one does have to be
organized and thoughtful about the whole business. |
 | Remember that the ultimate
goal here is to determine what can be produced most
profitably, given the existence of the constraint (clearly
identified in the case). Furthermore, profitability depends
on the volume of throughput through the constraint. How can
we maximize the throughput per constraint hour (or minute)? |
 | While TOC adherents argue
that they have a monopoly on this notion, that is not really
correct. Any decent managerial accounting text has a section
on maximization of contribution margin when there are
resource constraints (that's one use for linear
programming). Unfortunately, misallocation of costs results
in distortion of the results of such calculations, and the
concept may not be used as much in practice as it ought to
be. |
 | Note that standard cost
profitability information is given in Exhibit 5. |
 | For each product, you will
need to determine the following, both in total and
per unit, in dollars and as a percentage of
revenue. |
 | Note that standard cost
profitability information is given in Exhibit 5. |
 | For each product, you will
need to determine the following, both in total and
per unit, in dollars and as a percentage of
revenue.
 | "Hall" contribution (=
revenue - materials - labor - maintenance - utilities) |
 | ABC contribution (=
revenue - ABC variable costs, which includes everything
but depreciation and G&A) |
 | ABC profit (= revenue -
all ABC costs |
|
 | Remember that for TOC
purposes, variable costs = material only. |
 | Throughput is essentially
equal to contribution margin, however contribution margin
is defined. |
 | Note variations on the usual
definition of contribution margin (revenue - variable costs)
above. For each measure (standard cost contribution margin,
standard cost operating profit, Hall contribution, ABC
contribution, ABC profit, and TOC throughput, you will need
to determine the throughput per constraint minute. |
 | CBPA (Constraint-Based
Profitability Analysis) examines the Hall
throughput and the two ABC measures of throughput |
Graded
assignment::
- Compute the profits for the five sample products under
ABC and TOC.
- Identify the differences in assumptions between standard
costing, ABC, and TOC.
- Based on profit calculations and other relevant
considerations, make recommendations for Lehigh's product
mix in 1993.
Agenda for today's class:
discussion of the impact of capacity usage on product costs. |
|
04/28 |
T |
22 |
Today's case:
Miniscribe Corporation [Darden]
Case objective: The Miniscribe Corporation case describes
a common situation: bring in a new manager to shape things up in
a failing business. Somehow, over time, the controls and
incentives instituted in the new regime lead to mismanagement
and fraud. Our objective is to develop an understanding of the
mistakes that were made and how they might be avoided in similar
situations.
Graded assignment: [Hand in question 7
ONLY; one [uno, ein] page double spaced; one inch margins on all
sides]
- Described the environment at
Miniscribe before Wiles entered the scene.
- Consider Wiles's 13 disciplines. Have
you ever worked for a company that embraced these
principles?
- Didn't Wiles's approach offer
precisely the kind of discipline and focus needed to turn
the company around?
- What went wrong?
- Who were the key stakeholders in the
case? How did they perceive their responsibilities?
- What were Marge Norman's
responsibilities? Should she feel guilty about what she did
[or didn't do]?
If you had to
identify ONE central factor in the case, what answer would
you give to the question: "Fraud occurred at Miniscribe
mainly because...?" Explain your reasoning for your
conclusion.
|
|
04/30 |
R |
23 |
Read for today: Kaplan and
Norton, "The Balanced Scorecard--Measures That Drive Performance,"
Harvard Business Review, Jan-Feb 1992 and also by
Kaplan and Norton "Putting the Balanced Scorecard to Work,"
Harvard Business Review, Sep-Oct 1993; both available at
EBSCOhost Business Source Premier
Today's case: Chadwick, Inc: The Balanced Scorecard [HBS]
Case objective: develop balanced scorecard measures and
evaluate a company's balanced scorecard effort
Assignment:
- Outline the business cycle for
Norwalk. Where do things get started? What steps are
required to bring products to market?
- What additional attributes can you
identify for each of the perspectives in the scorecard? What
measurement and/or data gathering issues are involved?
- Evaluate the Norwalk Division's
efforts. What do you think of the actions of Bill Baron? Dan
Daniels? John Greenfield? Wil Wagner? Mike Hassler?
- Given your responses to Question 3,
assess the probability that Norwalk's scorecard will be
successfully implemented using the following scale:
- As certain as finding sand in the
Sahara Desert
- As likely as a rainy day in
Seattle in March
- As likely as rainy day in Seattle
in August
- Forget it.
Agenda for today's class:
we'll work on building a scorecard for Chadwick and evaluate
their efforts as described in the case. |
|
05/05 |
T |
24 |
Today's case: Maverick
Lodging [Darden]
Case objective: Evaluate the design and implementation of a
comprehensive balanced scorecard
Assignment:
- What happened in 1999? Was it a good year for the
company?
- Give some thought to Maverick's value-added proposition.
In other words, what competitive advantage is the company
trying to achieve? Do the Balanced Scorecard system and its
related bonus plan help Maverick in what it is trying to
achieve, or do they just make things worse?
- Be prepared to explain how the flow-through flexible
budget works.
- What change, if any, should be made in the balanced
scorecard?
Agenda for today's class: Continue our discussion of the
balanced scorecard and related management control issues |
|
05/07 |
R |
25 |
Read for today's class: "Introduction
to Responsibility Accounting Systems" [HBS] [read p. 10 through
the end of the article]
Today's case: Birch Paper [HBS]
Case objective: Understand transfer pricing issues
Assignment:
- Which bid should Mr. Kenton accept?
- Which bid is in the best interest of birch Paper
Company?
- Should the commercial vice president intervene? If so,
how?
Agenda for today: general
introduction to transfer pricing |
|
05/12 |
T |
26 |
Read for today's class:
"Workplace: At Bell Atlantic,
Competing Is Learned From the Inside," Wall Street Journal,
July 12, 1989; available at
ProQuest.
Today's case: San Francisco Bay Consulting [HBS]
Case objective: The San Francisco Bay consulting case deals
with transfer prices for computer services in a consulting firm.
Disputes have arisen over the fees charges and the quality of
the services provided.
Assignment:
- What are the reasons for the disputes and frustrations
at SF Bay? Who is being unreasonable?
- How should the monthly rental rate for desktop computers
be set? In answering this question, you should consider:
- The fluctuating external price of computers,
- How other (non-hardware) services and software might
be priced,
- The costs and benefits of having common network
access and software use, and
- How the groups recoup this internal expense.
- What do you think of the change in the "incidentals"
charging system? What are the costs and benefits of this
change?
- Would a system like the one described in the Bell
Atlantic article be more or less effective if internal
customers were not allowed to buy outside?
- How did Bell Atlantic's new system for
interdepartmental services change the organizational
rules of the game?
- Do you think that SF Bay should adopt a system like
the one at Bell Atlantic? Why or why not?
- What changes—in people, approaches or policies—would you
recommend at SF Bay to solve the problems with computer
services?
- As a result of your recommended changes, what would you
expect to happen to:
- the demand for interdepartmental services?
- the quality of services provided internally?
- turnaround time?
Agenda for today's class:
discuss transfer pricing issues. |
|
05/14 |
R |
27 |
Catch up day; assignment to be
determined |
|
05/19; 8:00 am |
Graded
assignment--final take home exam:
Xyberspace Consulting
- Describe the current method of
allocating costs associated with the Training and
Educational Services Group (TESG) to the Consulting and
Customer Care Groups.
- What are the concerns/complaints
about the current method of allocating costs associated with
the Training and Educational Services Group to the
Consulting and Customer Care Groups?
- Prepare an allocation of TESG costs
using the following alternative allocation methods:
- Develop a budgeted allocation
rate using budgeted costs and budgeted
usage. Use this budgeted rate to allocate costs to user
groups based on actual usage.
- Separate TESG costs into fixed
and variable costs. Consider a cost to be variable if it
varies with the number of training sessions (i.e.,
trainee-weeks). Otherwise, consider it to be fixed.
Allocate fixed and variable costs separately, as
follows:
- Develop an
allocation rate for fixed costs using budgeted
costs and actual usage. Use this rate to
charge fixed costs to user groups based on actual
usage.
- Develop a budgeted
allocation rate for variable costs using budgeted
costs and budgeted usage. Use this
budgeted rate to charge variable costs to user
groups based on actual usage.
- Separate TESG costs into fixed
and variable costs, as in 3.b. above. Allocate fixed and
variable costs separately, as follows:
- Develop an allocation rate for fixed costs using
budgeted costs and budgeted usage. Use
this rate to charge fixed costs to user groups based
on budgeted usage.
- As in 3.b. above, develop a
budgeted allocation rate for variable costs using
budgeted costs and budgeted usage. Use
this budgeted rate to charge variable costs to user
groups based on actual
usage.
- Evaluate whether each allocation
method addresses concerns about the current allocation
method that you identified in question 1.
- What
behaviors are likely to result
from each allocation method?
- Which allocation method do
you recommend? Why?
|
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Summary of graded assignments
| Item |
Date |
Topic or Focus |
Approximate % of final grade |
Notes and comments |
| Superior Mfg. Co. |
2/10 |
Review of basic concepts |
5.0% |
Individual submission |
| Baker Engineering |
2/19 |
Excel modeling, cost allocation |
2.5% |
Individual submission |
| Westmount Retirement
Residence |
3/05 |
Cost allocation |
15.0% |
Individual submission |
| Dakota Office Products |
3/17 |
Activity-based costing |
10.0% |
Alternative assignments; submit
one or the other, NOT both |
| Midwest Office Products |
3/19 |
Activity-based costing |
10.0% |
| Widget Works |
3/31 |
Excel model and profit reconciliation |
2.5% |
Individual submission |
| EntertainmentNow.com |
4/16 |
Profit reconciliation |
15.0% |
Groups of TWO |
| Lehigh Steel |
4/23 |
ABC; theory of Constraints |
10.0% |
|
| Miniscribe Corporation |
4/28 |
Ethics and fraud |
5.0% |
Individual submission; question 7 ONLY; 1 page, double
spaced |
| Xyberspace Consulting |
5/19 |
Transfer pricing |
15.0% |
Individual submission |
| Subtotal for assignments |
|
|
80.0% |
|
| Participation |
Daily |
|
20.0% |
|
| Total |
|
|
100.0% |
|
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