CURRENT ISSUES IN MANAGERIAL ACCOUNTING ISSUE 11-56

"XEROX PLEDGES TO CUT $1 BILLION IN COSTS, REPORTS A QUARTERLY LOSS OF $167 MILLION," THE WALL STREET JOURNAL, OCTOBER 25, 2000, JOHN HECHINGER AND LAURA JOHANNES. "GE SAYS EARNING ROSE 20% IN 3^RD PERIOD: RESULTS REFLECT NET GROWTH IN EVERY MAJOR UNIT, THE FRUIT OF COST CUTS," THE WALL STREET JOURNAL, OCTOBER 12, 2000, MATT MURRAY.

1. Xerox plans to cut costs and raise capital by selling various assets such as its stake in Fuji Xerox, several business units, its China operations and its business equipment financing operations. Xerox gave scant details about how it would achieve projected savings or a timetable for asset sales. As many as 5000 layoffs could result.

2. Standard costing provides a benchmark against which management can judge the cost of producing a product or service. Large variances above the standard cost should be investigate, and can help management in cutting costs.

ISSUE 11-57

"USING ENHANCED COST MODELS IN VARIANCE ANALYSIS FOR BETTER CONTROL AND DECISION MAKING," MANAGEMENT ACCOUNTING QUARTERLY, WINTER 2000, KENNARD T. WING.

Student answers will vary. The instructor should point out that variance analysis is based on overly simplistic cost models in which every cost has to be treated as either fixed or variable. In the real world, many costs do not behave according to those idealized models, which means that managers can always legitimately point to shortcomings in the variance analysis. According to the article, variance reports may fail to help managers identify cost issues, and managers can use the limitations of the variance reports to reduce their own financial accountability.

ISSUE 11-58

"STANDARD COSTING IS ALIVE AND WELL AT PARKER BRASS," MANAGEMENT ACCOUNTING QUARTERLY, WINTER 2000, DAVID JOHNSEN AND PARVEZ SOPARIWALA.

If production variances exceed 5 percent of sales, the FBU managers are required to provide an explanation for the variances and to put together a plan of action to correct the detected problems. In the past, variances were reported only at month-end, but often a particular job already would have been off the shop floor for three or more weeks. When management questioned the variances, it was too late to review the job.

Now, exception reports are generated the day after a job is closed. Any job with variances greater than $1,000 is displayed on this report. These reports are distributed to the managers, planners or schedulers, and plant accountants, which permits people to ask questions while the job is still fresh in everyone's mind.

ISSUE 11-59

"FORGET THE HUDDLED MASSES: SEND NERDS," BUSINESS WEEK, JULY 21, 1997, STEPHEN BAKER AND GARY MCWILLIAMS.

1. Failure to satisfy computer programming needs could lead to: (a) down-time; (b) production inefficiencies; (c) increased training costs; (d) high employee turnover;

and (e) low employee satisfaction.

2. Similar to the flexible overhead budgets shown in the text.

ISSUE 11-60

"MANAGEMENT CONTROL SYSTEMS: HOW SPC ENHANCES BUDGETING AND STANDARD COSTING," MANAGEMENT ACCOUNTING QUARTERLY, FALL 2000, HARPER A. ROEHM, LARRY WEINSTEIN, AND JOSEPH F. CASTELLANO.

1. Organizations that use statistical process control (SPC) create processes and systems to achieve their mission and objectives. Control is about creating conditions that will improve the probability that desired outcomes will be achieved.

A control system is comprised of a set of measures for defined entities, criteria for evaluating these measures, and processes for obtaining these measures and the criteria for evaluating them.

2. SPC adds value as a cost management technique in budgeting and standard costing systems by determining the ability of a system to achieved desired outcomes and determining if the system is accomplishing them.

ISSUE 11-61

"MANAGED CARE IS STILL A GOOD IDEA," THE WALL STREET JOURNAL, NOVEMBER 17, 1999, UWE REINHART.

Managed care simply means that those who pay for health care have some say over what services they will pay for and at what price. Periodic, statistical profiles of individual physicians' practices promise to be a more productive approach to cost and quality control. This is a common method of cost control in other countries. The method grants the physician clinical autonomy within some range of pre-established norms and intervenes only when physicians deviate substantially from them. In industry, this approach is known as management by exception. The development and updating of these practice norms is a perpetual search for the best clinical practices. To be effective, that search should be conducted in close cooperation with the practicing physicians to whom the norms apply.

ISSUE 11-62

"PERFORMANCE MEASUREMENT IN A TELEPHONE CALL CENTRE," MANAGEMENT ACCOUNTING, JANUARY 1999, GORDON BROWN, JOHN INNES, AND NOEL TAGOE.

The budgeting process includes predicting how many calls will be made and the duration of each call. The budgeted cost includes not only the cost of the telephone call but also the cost of the telephone operators and appropriate overhead costs. An important financial performance measure is the cost per call, which varies by country and by month.

The predicted level of telephone calls is very significant, because this anticipated level of usage determines the number of telephone operators at the call center. In addition to the actual number of telephone calls received, the following significant non-financial performance measures are reported via the system: call dropout rate, customer satisfaction measures, and average response time to answer calls. The call drop-out rate is the percentage of all callers who are put in a telephone queue and decide to hang up rather than wait in this queue for an operator to become free. These non-financial performance measures can provide information in terms of an international comparison of different call centers, which can lead to further investigation and resulting action.

ISSUE 11-63

"THE SATELLITE BIZ BLASTS OFF," BUSINESS WEEK, JANUARY 27, 1997, ERIC SCHINE AND PETER ELSTROM.

1. Overhead costs:

Launch vehicle testing System setup

Supervisors' salaries Insurance

Launch costs

2. Increased volume could reduce prices. If a firm is able to cover its fixed costs and the marginal cost of providing an additional unit of service is low, it may be able to provide service at a much lower cost.