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Advanced Management Accounting

by: Kaplan, Robert; Atkinson, Anthony A.

Advanced Management Accounting

by: Kaplan, Robert; Atkinson, Anthony A.

ISBN 13:
9780132622882
ISBN 10:
0132622882
Edition: 3rd
Format: Paperback
Copyright: 01/27/1998
Publisher: Pearson

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Summary

Contains leading-edge treatment of innovative management accounting issues used by major companies throughout the world.Advanced Management Accountingprovides a systematic management- oriented approach to advanced management topics. Each chapter is accompanied by cases to illustrate the concepts discussed.Written by an authoritative author team known for establishing innovative business standards. Includes an updated chapter on Transfer Pricing to reflect more modern approaches in addition to an entire chapter on Economic Value Added (EVA).Appropriate for business professionals involved in cost accounting and/or management.

Preface

xvii

INTRODUCTION

(11)

Origins of Cost Management Systems

(1)

The Scientific Management Movement

(3)

Management Control for Diversified Organizations

(1)

From Cost Management to Cost Accounting

(1)

Recent Developments in Manufacturing and Service Companies

(1)

Contemporary Management Accounting Developments

(1)

Summary

(2)

1 UNDERSTANDING COST BEHAVIOR

(21)

The Role of Management Accounting

(1)

Understanding Cost Behavior

(1)

An Example of Cost Structure

(8)

Deriving the Total Cost Function

(1)

Determining the Cost per Unit of Service Provided

(5)

Handling Indirect (Common) Costs

(1)

Computing the Cost of Unused Capacity

(1)

Cost-Volume-Profit Analysis

(3)

Summary

(1)

Problems

(5)

2 SHORT-TERM BUDGETING, RESOURCE ALLOCATIONS, AND CAPACITY COST

(27)

The Example

(1)

Short-Term Planning and Budgeting

(1)

Activities, Resource Use, and Costs

(1)

Optimizing the Use of Short-Term Resources

(2)

Equal Sales Objective

(1)

Total Sales Objective

(1)

Short-Run Profit Objective

(1)

Opportunity Costs, Capacity Costs, and the Theory of Constraints

(1)

The Issue of Multiple Resources

(2)

Effects of Reengineering and Continuous Improvement on Profitability

(1)

The Role of Cost Information in Allocating Short-Term Resources

(3)

Budgeting Operations

(3)

Production and Resource Use

(1)

Cash Flows

(3)

Summary

(1)

Problems

(8)

Cases:

(5)

Choosing a Product Mix

(1)

California Products Corporation: Analyze Product Profitability with Machine Constraints and Committed and Flexible Costs

(4)

3 ASSIGNING RESOURCE COSTS TO PRODUCTION COST CENTERS

(37)

Why Assign Service Department Costs?

(2)

Measuring Costs of Using Service Departments

(1)

Avoid Estimates and Allocations for Cost Control

(1)

A Fundamental Cost Accounting Equation

(1)

Assigning Service Department Costs

(6)

Service Departments Not Directly Supporting Production Output

(1)

Primary and Secondary Activities

(1)

The Nature and Problems of Reciprocal Services

(5)

Fall River Company: A Numerical Example

(2)

The Economic Insights of the Reciprocal Method

(1)

The Treatment of Committed Costs

(1)

Make-or-Buy Decisions and Cost Assignments

(1)

Special Case for Arbitrary Allocations

(1)

Summary

(1)

Appendix 3.1: The Reciprocal Cost Procedure

(2)

Problems

(8)

Case: Seligram, Inc.: Electronic Testing Operations

(7)

4 ACTIVITY-BASED COST SYSTEMS

(52)

Assigning Service Department Costs to Activities

(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

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Advanced Management Accounting

Advanced Management Accounting

9780132622882

0132622882

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