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TOPICS IN MANAGEMENT ACCOUNTING AMIS 4310 Topics/Case Descriptions Measuring Product Costs Case: Seligram, Inc.: Electronic Testing Operations Case Description: Explores the obsolescence of a cost system when technology changes. In particular, it asks students to increase the number of cost centers and allocation bases. The firm moves from a one-center, direct labor-hour system to a three-center, direct labor-hour and machine-hour systems. In addition, the case demonstrates how cost systems can induce subtle and not so subtle shifts in the strategy of the firm. In particular, we see how certain businesses are made to look inappropriately attractive or unattractive. Cost Behavior, Capacity Analysis and the Downward Demand Spiral Case: Bridgeton Industries: Automotive Component & Fabrication Plant Case Description: Bridgeton Industries was experiencing reduced sales. To become more competitive it introduced a classification procedure for products based upon their productivity and other factors. Products were classified into three groups: world class, potentially world class, and non-world class. The firm outsources the non-world class products. This outsourcing causes the costs on the remaining products to increase because some fixed costs associated with the outsourced products did not go away. These residual costs caused more products to become nonworld class and hence candidates for outsourcing. The firm has entered the death spiral. Activity-Based Costing Case: Destin Brass Products Co. Case Description: A specialized manufacturer of brass valves, pumps, and flow controllers is troubled by competitive pricing in pumps and higher than expected margins for flow controllers. Managers’ are increasingly questioning whether they know the true manufacturing costs of its products, and suspect that cost accounting and cost allocations to products may be to blame. Two volume-based systems are described and illustrated. The case requires students to develop activity-based costs for comparison and then decide which system is most useful to company managers. 1 Break-Even Analysis Case: Caribbean Internet Café Case Description: An entrepreneur is hoping to open Caribbean Internet Café in Kingston, Jamaica. He has gathered data on all the relevant costs: equipment, rent, labor, etc. He has also found a partner in the local telephone company, Jamaica Telecommunications Limited (JTL). JTL has provided equity and a long-term loan at favorable interest rates. He is now faced with the task of analyzing fixed, variable and start-up costs; contribution margin; and the concept of break-even to guide his decision. Business Decisions Case: Salem Telephone Company Case Description: An independent regulated telephone company has established a computer services subsidiary that has not lived up to expectations. Managers must determine whether it is profitable or not and consider changes in pricing or promotion that might improve profitability. The teaching purpose is to introduce concepts of relevant costs, contribution, and breakeven analysis. Operating Decisions Case: Superior Manufacturing Company Case Description: A professional manager is hired by a small manufacturing company after the president discovers that he has made poor decisions. One product appears to be unprofitable, whereas the product sold in highest volume is under competitive price pressure. A crude cost accounting system fails to reveal appropriate actions to correct problems. The case uses information on cost behavior, relevance of allocated costs, contribution margin and variances to explain the nature of cost accounting. Profit Planning and Budgeting Case: Cafes Monte Bianco: Building a Profit Plan Case Description: The case presents the profit plan as a tool to quantify strategic alternatives. Using projected revenue and cost schedules, students are required to build a profit plan (including an income statement and balance sheet) for a closely-held coffee manufacturer in Italy. Students must estimate cash flow and ROE and use this analysis to evaluate the attractiveness of a new strategy. 2 Profit and Cost Center Performance Evaluation Case: Compagnie du Froid, S.A. Case Description: The owner of an ice cream company must evaluate the performance of three regional businesses. To do the analysis, students must flex the budget by seasonal temperature; calculate revenue, volume, price, and efficiency variances; analyze the effects of transfer prices; and calculate return-on-investment. In addition, the owner considers how to set strategic boundaries and how to compensate his managers. Production Volume Variance Case: Polysar Limited Case Description: Canada’s largest chemical company produces and markets butyl rubber in two divisions, each treated as a profit center. The new plant in the North American Division operates below capacity resulting in a significant volume variance and an operating loss. The European Division is at capacity and is profitable. The actions of the European Division affect the capacity utilization of the North American Division. The case provides a strong understanding of the relationship between capacity utilization and the absorption of fixed costs, and illustrates why the volume variance was developed. It also reinforces student abilities to use budgets, pre-set standards and ex-post income statements to evaluate performance. Capital Budgeting Case: The Super Project Case Description: The manager of financial analysis at General Foods Corporation questions the company’s capital budgeting system in evaluating a proposal to introduce a major new product. The manager believes that several costs that are omitted from the analysis should be included in assessing the attractiveness of the proposed investment. The case provides opportunities to specify correctly the relevant cash flows using key assumptions, and to assess the usefulness of various techniques used to measure the attractiveness of the project. 3