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Tables of Contents for Advanced Management Accounting
Chapter/Section Title
Page #
Page Count
Preface
xvii
INTRODUCTION
1
11
Origins of Cost Management Systems
2
1
The Scientific Management Movement
3
3
Management Control for Diversified Organizations
6
1
From Cost Management to Cost Accounting
7
1
Recent Developments in Manufacturing and Service Companies
8
1
Contemporary Management Accounting Developments
9
1
Summary
10
2
1 UNDERSTANDING COST BEHAVIOR
12
21
The Role of Management Accounting
12
1
Understanding Cost Behavior
13
1
An Example of Cost Structure
14
8
Deriving the Total Cost Function
16
1
Determining the Cost per Unit of Service Provided
17
5
Handling Indirect (Common) Costs
22
1
Computing the Cost of Unused Capacity
23
1
Cost-Volume-Profit Analysis
24
3
Summary
27
1
Problems
28
5
2 SHORT-TERM BUDGETING, RESOURCE ALLOCATIONS, AND CAPACITY COST
33
27
The Example
33
1
Short-Term Planning and Budgeting
34
1
Activities, Resource Use, and Costs
35
1
Optimizing the Use of Short-Term Resources
35
2
Equal Sales Objective
35
1
Total Sales Objective
36
1
Short-Run Profit Objective
37
1
Opportunity Costs, Capacity Costs, and the Theory of Constraints
37
1
The Issue of Multiple Resources
38
2
Effects of Reengineering and Continuous Improvement on Profitability
40
1
The Role of Cost Information in Allocating Short-Term Resources
40
3
Budgeting Operations
43
3
Production and Resource Use
43
1
Cash Flows
43
3
Summary
46
1
Problems
47
8
Cases:
55
5
Choosing a Product Mix
55
1
California Products Corporation: Analyze Product Profitability with Machine Constraints and Committed and Flexible Costs
56
4
3 ASSIGNING RESOURCE COSTS TO PRODUCTION COST CENTERS
60
37
Why Assign Service Department Costs?
61
2
Measuring Costs of Using Service Departments
63
1
Avoid Estimates and Allocations for Cost Control
64
1
A Fundamental Cost Accounting Equation
65
1
Assigning Service Department Costs
66
6
Service Departments Not Directly Supporting Production Output
72
1
Primary and Secondary Activities
72
1
The Nature and Problems of Reciprocal Services
73
5
Fall River Company: A Numerical Example
74
2
The Economic Insights of the Reciprocal Method
76
1
The Treatment of Committed Costs
77
1
Make-or-Buy Decisions and Cost Assignments
77
1
Special Case for Arbitrary Allocations
78
1
Summary
79
1
Appendix 3.1: The Reciprocal Cost Procedure
80
2
Problems
82
8
Case: Seligram, Inc.: Electronic Testing Operations
90
7
4 ACTIVITY-BASED COST SYSTEMS
97
52
Assigning Service Department Costs to Activities
98
5
Identifying Activities and Mapping Resource Costs to Activities
101
1
Estimates or Allocations?
102
1
Assigning Service Department Costs: Some Fixed and Some Variable
103
1
Activity Cost Drivers
104
6
Selecting Activity Cost Drivers
108
2
Designing the Optimal System
110
2
Summary
112
1
Cases:
113
36
The Classic Pen Company
113
3
Western Dialysis Clinic
116
3
Paisley Insurance Company: Activity-Based Costing in a Service Industry
119
4
Bedford Mining
123
2
The Rossford Plant
125
6
The Portables Group
131
4
John Deere Component Works (A)
135
14
5 ACTIVITY-BASED MANAGEMENT
149
73
The Product Profitability Whale Curve
150
1
Pricing
150
8
Demand Curve Estimation
152
1
Short-Term Pricing
153
1
ABC Costing For a New Order
154
2
Determining Profit Margins
156
2
Using ABC for Analyzing Customer Profitability
158
2
Product Substitution
160
1
Redesign Products
161
1
Improve Processes and Operations Strategy
161
2
Technology Investment
163
1
Eliminate Products
163
1
Activity-Based Management: A Summary
163
1
Problems
164
4
Cases:
168
54
Price Leadership in an Oligopoly
168
6
Siemens Electric Motor Works (A)
174
5
Kanthal (A)
179
8
Indianapolis: Activity-Based Costing of City Services (A)
187
10
The Co-operative Bank
197
16
John Deere Component Works (B)
213
9
6 COST BASED DECISION MAKING
222
66
Target Costing
223
6
Customer Orientation
224
1
The Target Costing Process
225
2
Target Costing in Action: Toyota Motors
227
1
Tear-Down Analysis
227
1
Quality Function Deployment
228
1
Value Engineering
228
1
Reengineering
229
1
Kaizen Costing
229
1
Target Costing: A Comprehensive Example
230
6
Value Engineering
233
1
Functional Analysis
234
1
Reengineering
235
1
Life Cycle Costing
236
1
Other Costing Tools
237
1
Quality Cost
237
1
Taguchi Cost
237
1
Environmental, Salvage, and Disposal Costs
238
1
Conclusion
238
3
Problems
241
5
Cases:
246
42
Piedmont Express Forms: Process Analysis for Strategic Decision Making
246
8
Activity-based Management at Stream International
254
14
MosCo, Inc.
268
20
7 DECENTRALIZATION
288
79
Why Decentralize
290
3
The Environment of the Firm
290
1
Information Specialization
290
1
Timeliness of Response
291
1
Conservation of Central Management Time
292
1
Computational Complexity
292
1
Training for Local Managers
293
1
Motivation for Local Managers
293
1
Summary
293
1
Organization of Decentralized Units
293
5
Standard Cost Centers
294
1
Revenue Centers
295
1
Discretionary Expense Centers
295
2
Profit Centers
297
1
Investment Centers
297
1
Developing a Performance Measure for Decentralized Operating Units
298
5
Problems of Goal Congruence
300
1
Problems of Externalities
301
1
Overconsumption of Perquisites
302
1
Summary
303
1
Problems
304
2
Cases:
306
61
Pinnacle Mutual Life Insurance Company
306
15
Wattie Forzen Foods, Ltd.: A New Zealand Case Study in Management Accounting and Extreme Decentralization
321
16
Industrial Chemicals Company
337
5
BP America: Cost Centers and Profit Centers
342
4
Empire Glass Company
346
21
8 THE BALANCED SCORECARD: MEASURING TOTAL BUSINESS UNIT PERFORMANCE
367
75
The Balanced Scorecard
368
8
Financial Perspective
368
1
Customer Perspective
368
3
Internal Business Process Perspective
371
3
Learning & Growth Perspective
374
1
Summary of Balanced Scorecard Perspective
375
1
Linking Multiple Scorecard Measures to a Single Strategy
376
1
Cause and Effect Relationships
376
1
Performance Drivers
377
1
Diagnostic Versus Strategic Measures
377
1
Four Perspectives: Are They Sufficient?
378
1
Summary
379
1
Cases:
380
62
Chadwick, Inc.: The Balanced Scorecard
380
3
Chemical Bank: Implementing the Balanced Scorecard
383
14
United Way of Southeastern New England (UWSENE)
397
12
Mobil USM&R (A1)
409
8
Mobil USM&R (A2)
417
5
Mobil USM&R (B): New England Sales and Distribution
422
6
Mobil USM&R (C): Lubricants Business Unit
428
7
Mobil USM&R (D): Gasoline Marketing
435
7
9 FINANCIAL MEASURES OF PERFORMANCE
442
57
The Nature of Financial Control
442
1
Control in the Aggregate Using Financial Measures
442
1
Control in the Small Using Nonfinancial Measures
443
1
Operations Control and Management By Exception Using Variance Analysis
443
22
An Example: Jersey River Book Publishing Company
444
1
The Role of Variance Analysis
445
1
The Planning Variance
445
1
The Flexible Budget Variance
445
2
Flexible Budget Variances for Unit-Related Costs--Price and Quantity Effects
447
1
Flexible Budget Variances for Batch-Related Costs--Batch Size and Batch Cost Effects
448
1
Flexible Budget Variances for Product-Related Costs
448
1
Facility-Sustaining Costs
448
1
Summary
449
1
Organization Control Using Profit Measures
449
1
Using Profits to Assess Organization Unit Performance
449
1
Choosing a Profit Index
450
1
Short Run Operating Margin
450
1
Controllable Contribution
451
1
Divisional Segment Margin
451
1
Divisional Profit Before Taxes
452
1
Common Revenues
452
1
Transfer Pricing
453
1
Market Prices
454
2
Using Marginal Cost Transfer Prices
456
1
Using Activity-Based Costs for Transfer Pricing
457
1
Full Costs
458
2
Dual-Rate Transfer Prices
460
1
Negotiated Market-Based Price
460
1
Transfer Pricing--A Summary of Practice
461
2
Domestic Versus International Transfer Pricing
463
1
Other Measures of Performance
464
1
Productivity Measures
465
2
Return on Investment
466
1
Material Yield
466
1
Labor Yield
466
1
Equipment Yield
467
1
Summary
467
2
Problems
469
10
Cases:
479
20
Transfer Pricing in an Automobile Dealership--Shuman Automobiles, Inc.
479
5
Transfer Pricing Among Related Businesses--Kirkpatrick Associates, Incorporated
484
2
Transfer Pricing in a Multinational Corporation--Del Norte Paper Company (A)
486
4
Managing Profit Center Performance--Wilkinson Transport (B)
490
6
Internal Transfer Pricing With an Outside Market--The New Brunswick Company
496
3
10 FINANCIAL MEASURES OF PERFORMANCE: RETURN ON INVESTMENT (ROI) AND ECONOMIC VALUE ADDED (EVA(TM))
499
52
Relating Profits to Assets Employed
499
1
A Historical Perspective
500
2
The Matsushita Internal Capital System
502
2
The Danger of ROI Control
504
1
A Simple Example
504
1
Technical Shortcomings of the ROI Measure
505
1
Economic Value Added (Residual Income)
506
3
Expense Versus Capitalize
509
5
Leased Assets
511
3
Price-Level Adjustments
514
4
Depreciation Method
518
2
Summary of Technical Adjustments to ROI and EVA Calculations
520
1
Linking ABC to Economic Value Added: Assigning Assets
520
3
Summary
523
1
Problems
524
8
Cases:
532
19
Using EVA and MVA at Outsource, Inc.
532
5
Purity Steel Corporation, 1995
537
7
Western Chemical Corporation: Divisional Performance Measurement
544
7
11 MEASURING CUSTOMER, INTERNAL BUSINESS PROCESS, AND EMPLOYEE PERFORMANCE
551
42
Customer Perspective
551
6
Market and Account Share
551
1
Customer Retention
552
1
Customer Acquisition
552
1
Customer Satisfaction
553
1
Customer Profitability
553
1
Beyond the Core: Meeting Customer's Expectations
553
4
Internal Business Perspective: Operations and Innovation Processes
557
10
Operational Excellence: Time, Quality, and Cost Measurements
558
6
Innovation Measures
564
3
Employee Capabilities
567
2
Core Employee Measurement Group
567
1
Strategic Job Coverage
568
1
Summary and Conclusion
569
1
Problems
570
8
Cases:
578
15
Draper Instruments
578
4
Texas Instruments: Materials and Control Group
582
11
12 INVESTING TO DEVELOP FUTURE CAPABILITIES TECHNOLOGY
593
80
Is a New Theory Needed?
594
9
Short Time Horizon
595
1
Excessively High Discount Rates
595
2
Risk Adjustments
597
1
Alternatives to New Investment
598
2
Incremental versus Global Analysis
600
1
Front-End Investment Costs
600
2
Benefits Invisible Using Traditional Cost Systems
602
1
Measuring All the Benefits from the New Process
603
2
Reduced Inventory Levels
603
1
Less Floor Space
603
1
Quality Improvements
604
1
More-Accurate, Less-Precise Estimates
604
1
The Difficult-to-Quantify Benefits
604
1
Investing in Organizational Capabilities
605
3
External Integration: Linking Design to the Customer
605
1
Internal Integration: Connecting Functions Within the Organization
606
1
Flexibility: Responsiveness to Change
606
1
Experimentation: Achieving Continuous Improvement
607
1
Cannibalization: Achieving Radical Improvement
607
1
Summary on Building Organizational Capabilities
608
1
The Bottom Line
609
2
Problems
611
2
Cases:
613
60
Othello Corporation (A): Capital Equipment Planning and Control
613
14
Wilmington Tap and Die
627
11
Stermon Mills Incorporated
638
13
Burlington Northern: The ARES Decision (A)
651
16
Burlington Northern: The ARES Decision (B)
667
6
13 INCENTIVE AND COMPENSATION SYSTEMS
673
91
The Expectancy View of Behavior
673
1
Intrinsic and Extrinsic Rewards
674
1
Tying Rewards to Performance
675
6
Rewards Based on Financial Performance
675
1
Rewards Based on Group or Individual Performance
675
1
Rewards Based on Nonfinancial Measures of Performance
676
1
Executive Compensation
676
1
Incentive Compensation and the Principal-Agent Relationship
677
4
Important Attributes of Compensation Systems
681
14
Role for Bonus and Incentive Contracts
682
2
Types of Incentives
684
1
Specific Forms Assumed by Monetary Compensation Plans
684
4
Evaluating Accounting-Based Incentive Compensation Schemes
688
4
Short-Term versus Long-Term Performance Measures
692
1
Are Chief Executives Overpaid?
693
2
Rewarding Other Organization Members
695
2
Gainsharing
695
1
Piecerate Systems
696
1
Labor-Related Plans
696
1
Bonus Systems
697
1
Summary
697
2
Problems
699
9
Cases:
708
56
McDonald's Corporation: Designing an Incentive System
708
6
Analog Devices, Inc. (A)
714
9
The Charles River Company
723
10
RKO Warner Video, Inc.: Incentive Compensation Plan
733
11
Duckworth Industries, Inc.--Incentive Compensation Programs
744
20
14 FORMAL MODELS IN BUDGETING AND INCENTIVE CONTRACTS
764
29
Issues and Terms in Formal Incentive Models
764
4
Wealth Leisure and Risk Attitudes
764
1
Individual Honesty and the Role of Contract Monitoring
765
1
Choosing the Right Manager and the Role of Information
766
1
Balancing Incentive and Return Considerations
767
1
Problems of Obtaining Information for Standards and Budgets
768
2
Using Information for Rewards and Control--The Moral Hazard Problem
769
1
Moral Hazard and Information Impactedness
769
1
The Agency Model
770
3
The Setting
770
1
The Motivational Problem: Why a Flat Wage Will Not Do
771
1
The Principal's Problem: How to Tie Reward to Performance
771
2
Eliciting Honest Revelation of Privately Held Beliefs
773
6
The Role of Uncertainty in the Soviet Incentive Model
744
31
Limitations of the Truth-Inducing Budget Scheme
775
2
Truth-Inducing Schemes for Resource Allocation Decisions
777
2
The Role of Insurance
779
1
Summary
780
2
Problems
782
11
INDEX
793