With today’s high tech information systems, firms can acquire and manage more information at lower cost than ever before.. Timeliness and cost are two important factors that managers mus
Trang 1Introduction to Cost Management Systems Questions
1 The production of any service or product requires inputs No
product or service is produced without incurrence of costs The objective in incurring costs is to reap a reasonable
return on those costs so that profits are generated
2 Cost accounting data are becoming increasingly important
because of the transference of power from producers to
consumers With many equivalent, high-quality products and services competing for consumer dollars, producers have lost some ability to control their prices Now, the producers must concentrate on controlling costs to generate profits A
secondary consideration in redesigning cost systems is the influence of advancing information technology With today’s high tech information systems, firms can acquire and manage more information at lower cost than ever before
3 The only realistic method of evaluating whether costs are
being effectively managed is to compare the benefits generated with the costs incurred This approach is equivalent to
evaluating the costs incurred relative to the objectives that were to be accomplished from incurring the costs
4 All control systems rely on information Information is
needed regarding expected performance and actual performance
An effective management information system gathers and
disseminates both types of information
5 A control system is a tool to aid managers in steering an
organization to the achievement of its goals A control
system has four components: a detector, an assessor, an
effector, and a communications network A control system exists to keep an organization’s actual operations in line with its plans and strategies
6 Multiple control systems are necessary because no single
control system can be effective for all dimensions of
performance For example, firms have activities related to purchasing, selling, operating, hiring, and contracting All
of these and other areas will require control systems
25
Trang 27 Organizations typically have goals and objectives for both the
short and long terms Consequently, organizations must have control systems in place to ensure that both short- and long-term targets are achieved For businesses, one important short-term goal is to achieve profits, and a long-term-goal is
to remain solvent and viable
8 Managers might be willing to accept errors or miscalculations
in information if the cost of getting more accurate
information was too high or if the time spent obtaining more accurate information was too long Timeliness and cost are two important factors that managers must consider in
determining when to acquire more accurate information
9 Research and development: GAAP-based rules require these
costs to be expensed as incurred For internal purposes, however, managers may want to match these costs with the
benefits they generate: new products and services
Product costs: For internal purposes, activity-based cost
assignments may be used to better understand cost causality For external purposes, more traditional cost assignments may
be used for compliance with GAAP and IRS requirements
Life cycle considerations: For internal reporting purposes,
costs may be maintained on a life-cycle basis to better
associate cause and effect; for external reporting, the firm will likely use period-by-period reporting to be in compliance with GAAP
10 An integrated cost management system should relate the costs
of business processes to the benefits they generate This information is useful in evaluating both the effectiveness and efficiency of the processes A CMS may generate other
information useful in evaluating the effectiveness of
processes such as their ability to improve product quality
11 No The primary purpose of a cost management system is to
manage costs relative to strategies Thus, the intent is to control expenditures to maximize the achievement of goals that have been specified by shareholders, managers, and other
organizational participants
12 Every organization is unique in its objectives, constraints,
culture, strategies, and structure Because all of these variables are important determinants of the configuration of a cost management system, every organization requires a unique cost management system
Trang 313 Organizational form influences the cost management system
design in several ways For example, organizational form determines, in part, who in the organization is empowered to make decisions Also, the organizational form determines whether certain costs will be incurred (e.g., federal income taxes) and, whether those costs affect other costs such as the cost of acquiring public or private capital
14 Core competencies are activities a firm must execute well to
survive Information useful in assessing core competencies would include benchmark data from competing firms or other firms, historical performance data, intelligence regarding actions likely to be taken by competitors, and measurement systems to capture performance in areas of core competencies
15 Centralized control is more appropriate in environments that
are relatively static and in firms that have a shortage of managerial talent and constrained resources for developing effective control systems
Decentralized control is more appropriate in organizations that are very dynamic and involved in diverse activities in which people closest to the action have the best information for making decisions Decentralization is also warranted in geographically dispersed firms that have the talent and resources to develop the necessary sophisticated control systems to make decentralization work effectively
16 A person’s answer to this question will likely hinge on how
comfortable the person is with accepting authority and the responsibility for using it Working in a decentralized
environment gives an employee more autonomy but also more responsibility for results Certainly, some employees may be willing to sacrifice some freedom of choice to avoid that responsibility and, therefore, would prefer a more centralized environment
17 a Build mission: market share data, growth in product
sales, data on geographic sales, cost of engineering design changes, and product life cycle cost data
b Harvest mission: profit measurements, market share,
cash flow, sales volume, and product line/geographic information
c Hold mission: cash flow, profit measurements, market
share, marketing and distribution costs, and market data such as competitor pricing
Trang 418 Organizational culture can be an effective control device A
culture is a reflection of the values and practices that are acceptable or preferred by the company The mere existence of the culture deters certain undesirable practices and
encourages others The culture can be perpetuated by hiring people who have values that are consistent with the culture
In this manner, the culture is perpetuated and the employees have homogeneous beliefs regarding behaviors
19 AT&T operated in a regulated environment In such an
environment, the company had no competitors and no incentive
to be cost efficient in its operations Most decisions were made at the top, and employees were socialized to be followers rather than leaders With deregulation came the need for AT&T
to be concerned about cost control In the Soviet Union all resource allocations were made by centralized managers
(government officials) Perestroika resulted in the
equivalent of decentralization Resource allocation was
turned over to the private sector Also, many former
government facilities were privatized and became private
firms In both the AT&T case and the Soviet Union, the
isolation from competitive forces was removed To survive, AT&T and the many privatized operations in the Soviet Union had to learn how to satisfy customers, or become
market-focused rather than internally market-focused
With these changes, managers needed to acquire information about their customers and competitors In
addition to understanding their markets, the managers needed
to find ways to become more efficient To become more
efficient, managers had to encourage employees to be cost-conscious and provide them with incentives to reduce costs Accordingly, information about employee performance was
needed, aw well as information regarding supplier pricing, taxes, quality measurement, and customer-based performance
20 Confrontational competition involves a company seeking a
temporary market advantage over its rivals To assess
relative standing in a competitive dimension, such as product quality, a company necessarily must have information about its competitors—in this example, information about quality
21 The life-cycle stage determines which costs are important and
which costs are controllable For example, in the design stage, no production costs are being incurred; so, a focus on production costs would be ineffective and inappropriate Instead, the focus should be on research and development costs and product design costs Similarly, in later stages of the product life cycle, no R&D expenses are being incurred,and thus, no focus should be given to them; rather, production and marketing costs should be the focus of attention
Trang 522 Cost management has risen to the top of concerns because it
has become a primary determinant of profitability Because competition is increasingly a contest among equals, the
balance of power in the marketplace has been shifted to the consumer, who now has many choices of competitive products and services With many equivalent products competing for
consumer dollars, the ability of any company to control price
is diminished Companies must focus on reducing price to maintain market share; to achieve price reductions, companies must effectively manage costs
23 Core competencies for a typical college or university
would include the areas of: student retention, student
recruiting, student placement, faculty recruiting, cost
management, faculty/student ratios, research productivity, generation of research grants, and fund raising Student answers will vary from those provided here
24 Productivity is the amount of output generated per
employee Sales is the most likely measure of output To increase productivity, managers can increase the use of
technology Technology allows more output to be produced with fewer employees Managers can also invest heavily in training
to improve the skills of workers Higher-skilled workers are more productive than lower-skilled workers Managers can also simplify product designs and production processes to improve productivity and eliminate non-value-adding activities
25 Time-to-market is important in industries where economies of
scale can be captured by the firm first-to-market Time-to-market is important in automobile manufacturing (e.g.,
Chrysler and the minivan), electronics (e.g., Hewlett-Packard and the inkjet printer, Apple and the personal computer), and news reporting
Industries in which time-to-market is less important include commodity goods (e.g., agricultural products, mining), very stable or mature industries (e.g., office furniture), and industries in which there is little competition based on
product innovation (paper production)
26 Supply chains, or value chains, are increasingly the focus of
cost management systems because managers are recognizing that
many costs must be managed between firms, not just within
firms By sharing information and ideas with its suppliers and customers, firms can develop effective cost management strategies for virtually all costs—not simply those it
controls directly
Trang 627 Feeder systems are the individual systems that provide the
information to the cost management system, e.g., payroll
system, accounts payable, accounts receivable These systems are very important to the design of a CMS because they
determine the type, format, and amount of information
gathered One primary consideration is the compatibility among the many feeder systems Additionally, when gap
analysis is conducted, any additional information that is needed may be acquired from an existing feeder system
28 They are equally important as they are all integral to the
design of an effective cost management system Only when all three elements are designed properly does the cost management system serve to effectively and efficiently implement the firm’s strategies
29 False To be successful, a firm must be solvent in the short
run and profitable in the long run As long as a firm has enough cash to cover any negative cash flows, it can operate
at a loss in the short term Often, short-term profits must
be sacrificed to obtain long-term profits This is
particularly true in industries that require large upfront investments in research and development to develop and
introduce new products
30 Students should have little difficulty thinking of incidents
where the relationship between behaviors and performance
evaluation is evident Sometimes the behavior exhibited is positive, and sometimes it is negative For example, by
grading based on class participation, a professor may get students to be more involved in class discussions By giving certain types of exams, a professor may encourage students to memorize facts By providing demerits for missing class, a professor may encourage a high level of class attendance By rewarding only research productivity, a university may
encourage a professor to be uncaring about the quality of his
or her teaching
31 Managers use multiple perspectives to design performance
measures because they recognize there are different
stakeholders in their organizations All of these
stakeholders must be satisfied with the performance of the organization if the organization is to thrive
For example, customers are interested in innovative, high-quality products and services that are delivered at a reasonable price If customers are not satisfied, they can take their dollars elsewhere and the company will fail
Stockholders are interested in a satisfactory return on their investments Generation of profits, dividends, and appreciation in stock prices attract stockholders The
failure to achieve these outcomes will leave the firm unable
to attract the capital that is necessary to remain viable
Trang 732 Gap analysis is a formal process in which the actual set of
control and information systems of an organization are
contrasted with the ideal set of such systems Any
differences between the sets are labeled “gaps.” The purpose
of gap analysis is to develop a strategy to close the gaps so that the actual systems in place come to resemble the ideal systems
33 CAM-I was a consortium organized to develop a framework for
the design of cost management systems in advanced
manufacturing settings One outcome of CAM-I was a set of
principles for designing cost management systems Although compatible with existing cost accounting systems, the set of principles as a whole suggests a radical departure from
traditional practices The practices focus management
attention on organizational activities, product life cycles, integrating cost management and performance measurement, and integrating investment management and strategic management
Trang 834 Two observations arise from an examination of the data
First, Firm Z is generating more profit per dollar of sales than is the average firm in the industry Although the
average firm generates profit equal to 10 percent of sales ($0.096 ÷ $0.96), Firm Z’s profits are a whopping 26 percent
of sales ($1.04 ÷ $4) Second, relative to its sales, Firm Z
is spending much less on advertising, R&D, and investment in new facilities as indicated in the following table
Spending as a Percentage of Sales Firm Z Industry Average
Advertising 2% 17% R&D 8% 25%
Facilities investment 10% 25%
While one interpretation of the data is that Firm Z is much more profitable than the average firm in the industry because it is more effectively managing its costs, the
opposite is likely true Firm Z is robbing from its future to increase the current level of profits Unless Firm Z starts investing much more heavily in the three areas featured in the problem, the firm will start to lose market share, sales will drop, and profits will decline dramatically
35 The problems cited in the article are serious but can be
addressed with a comprehensive solution Although solutions can be devised for all firms, the solution crafted for any particular firm in the advertising industry may differ from the others The starting point in designing a solution would
be to formally develop a company mission statement, determine
a competitive strategy, and describe the market to be served
Next, the organizational structure would be reviewed to ensure that it is appropriate for the strategy that is to be implemented Then, control systems can be designed that are tailored to the strategy, structure, and culture of the
specific advertising firm
As described in the article, most problems in the advertising industry relate to poor customer service This dimension of performance deserves special consideration in devising the cost management system The cost management
system developed for any firm would need to include control components from all three categories of system elements: motivational, informational, and reporting A key to making the new systems effective would be to establish accountability consistent with the organizational authority structure
Trang 9To be accountable, each manager in the advertising agency must be assigned certain responsibilities Each manager’s performance should be measured relative to benchmarks that are specific for a given type of responsibility Then, a reward system must be established that provides monetary and other benefits that are based on the comparison of actual and
benchmark performance If designed appropriately, the
performance and reward systems will convince managers to be much more attentive to the needs and demands of their
customers Additionally, information systems would be
developed to ensure that each manager received the data
necessary to fulfill their responsibilities competently
36 The presentation should, at a minimum, discuss the following
points:
• the corporation is relatively more expensive to launch than the other organizational forms
• the general partnership is the least expensive to form
• outside capital is easier to raise in the corporate form because of the limited liability protection offered to
shareholders along with the well-developed secondary markets for publicly-traded stocks
• separation of ownership and management is most difficult in the general partnership form It is probably easiest to achieve in the corporate form
• only the corporation is subject to income taxes The other entity forms can be taxed as pass-through entities
• only the general partnership exposes the investors to
unlimited liability The other forms offer at least limited liability to investors
37 No solution provided
38 No solution provided
Trang 1039 The old adage “you get what you measure” applies to the use
of accounting information The major points that should be raised in the discussion are:
• Accounting information will promote goal achievement only if the measurements are highly correlated with the goals Alternatively, goal congruence problems will be created if the accounting information captures performance dimensions that are not highly correlated with goal achievement The use of nonfinancial performance measures may serve to
strengthen the tie between accounting information and goals
• Only if the accounting information is accurate will it serve
to promote goal congruence and goal achievement
• Only if the accounting information is used as a basis to both measure performance and reward employees will it be relevant Even if accounting information is highly
correlated with organizational goals, managers and employees will ignore the information unless it directly affects their welfare It will affect their welfare if their evaluation, pay, and promotion are based on accounting measurements
40 No solution provided Students will have different answers
41 If a firm fails to achieve its goals and objectives, there are
two possible causes related to topics in this chapter First, the strategy itself could have been flawed (because, for
example, the organization lacked the necessary resources to execute the strategy) Second, the control systems may have been inadequate to ensure that the strategy was successfully implemented
The fact that Corel demonstrated a distinct change in its approach to management of its costs, in this case, indicates the company changed its strategy The original strategy was
to use a low-price approach to capture market share from
Microsoft However, the company lacked the necessary
financial resources to maintain this strategy
The company changed to a strategy of becoming a niche player (formally, this strategy is sometimes called
compression of competitive scope) rather than the dominant player in the industry The main niche the company seeks to serve is the current owners of Corel software—individuals and firms who have previously indicated a preference for Corel products With the change in strategy, the company no longer needed to spend massively on advertising and promotion to attract a broader clientele Consequently, the company
slashed these costs and that allowed profits to increase