MANAGERIAL ACCOUNTING FOR DECISION MAKING
AMIS 823 – Spring 2008
Course Syllabus
INSTRUCTOR: Prakash R.
Mulchandani
OFFICE HOURS: M/W 3:30-4:30pm,
and by appointment
OFFICE: 432 Fisher Hall
E-MAIL: mulchandani.3@osu.edu
TELEPHONE: (614) 247-6267
FAX: (614) 292-2118
COURSE OUTLINE
This course focuses on the strategic nature of management accounting and emphasizes the
critical role that information plays in decision-making, strategy execution, and overall
enhancement of a firm’s value. Primarily taught through case studies, this course will utilize
and build upon the concepts studied in prior Management Accounting courses, and allow the
students an opportunity to see how these concepts fit together. Selected readings from
textbooks and business periodicals will be used to blend in appropriate theory for newer
subjects that may be the focus of some case studies.
The world of business continues to change dramatically. As a result, the role of managerial
accounting is very different than it was even a decade ago. Today, managerial accountants
serve as internal business consultants, working side-by-side in cross-functional teams with
managers from all areas of the organization as they make decisions towards defining and
implementing strategy. To complete their knowledge of managerial accounting, students must
understand how managers are likely to use and react to information provided by management
accounting. On the other hand, managers must understand the basis of the financial information
provided by management accountants. We will explore both sides during our discussions.
The course is divided into three major parts. The first part covers fundamental concepts,
including activity-based management, and provides an overview of managerial accounting. The
second part discusses concepts and methods useful for managerial decision making, such as
CVP and differential analysis. Finally, in the third part, we concentrate on planning and
performance evaluation of business segments as they strive to execute the firm’s strategy. In
this part, we also discuss measurement and incentives (compensation) of managers.
As indicated above, this is a case-based course to illustrate the applications of managerial
accounting concepts in real-life situations. While preparing these cases, students should read
about basic concepts on their own, using any of the textbooks mentioned later in this syllabus.
However, I do intend lecturing on some of the relatively advanced topics (e. g. activity-based
costing, variance analysis, pricing, target costing and allocations) at appropriate times during
the quarter.
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TARGET AUDIENCE
The course is general enough to benefit both MAcc and MBA students. A basic knowledge of
financial and managerial accounting should suffice as a pre-requisite for the course. Both sets
of students will enhance their understanding of Managerial Accounting topics by seeing how
they are applied to real-life situations. In addition, MBA students will find that the course
integrates several of the concepts they have learned in their curriculum. MAcc students will
welcome the exposure to Strategy, and see how important Managerial Accounting is towards its
(Strategy) implementation.
REQUIRED COURSE MATERIALS
1. Course Packet. Available at UniPrint (Cop-Ez).
OPTIONAL MATERIALS FOR REFERENCE
1. Hilton, Ronald W., Managerial Accounting: Creating Value in a Dynamic Environment,
Seventh Edition, McGraw-Hill, 2008.
2. Horngren, Charles T., George Foster and Srikant Datar, Cost Accounting: A Managerial
Emphasis, Twelfth Edition, Prentice-Hall, 2006.
3. Any Other Managerial/Cost Accounting Text
NOTE: I will put copies of the two books indicated above as reference material in the library
EVALUATION AND GRADING
Student performance in the course will be evaluated and graded to the following scale:
1.
2.
3.
4.
Group Detailed Case Analysis…………………………….24%
Group Short Case Analysis………………………………..24%
Class Participation.………………………………………...32%
Final Exam………………………………………………....20%
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CASE ANALYSIS
Students will work on the cases in groups of three (preferably) or four. Each group will be
required to submit written Case Analysis (five pages plus Exhibits) for each of the following
cases:
1. Cafes Monte Bianco: Building a Profit Plan
2. Compagnie du Froid, S.A.
In addition, groups will pick four of the remaining cases (except Birch Paper) that interest them
for a short write-up (2-3 pages plus exhibits).
Case write-ups should include a discussion of the situation, key issues, and your
interpretation/recommendations as needed. Please remember that we are covering several
topics and cases in this course, so it is difficult to generalize all the case analysis into a specific
format. With your background and knowledge, I am sure that you will figure out the
appropriate write-up for the specific cases that you are analyzing. The questions shown in this
syllabus are a good baseline for analysis.
The cases will be graded according to the simple system of ‘check-plus’, ‘check’, and ‘checkminus’. The point equivalents will be twelve, ten and eight respectively for the required cases.
For the short write-ups, the point equivalents will be six, five and four respectively.
In general, each member of the group will receive the same grade on a written case analysis.
However, there may be times when one or more members of a group will “free ride” on the
work of other members. The grades of such free riders will be substantially reduced if
consistent evidence of free riding is found. To discover free riding, each member of a group
may submit an individual Group Self-Evaluation Form around the time when the group’s paper
is submitted. This can be done during class or after class. An example Group Self-Evaluation
Form is included with this syllabus. If someone does not submit a Group Self-Evaluation
Form, the Instructor will assume that, from this student’s perspective, at least, no free riding
problems existed.
CLASS PARTICIPATION
Class participation is one of the best and most reliable ways to demonstrate understanding of
the ideas and concepts discussed in readings and case materials. While my preference is to rely
on voluntary participation, I may call on you at any time to open the case with a summary of
the key issues, to discuss the required readings, or to answer a specific question on a case.
Consequently, you will need to prepare carefully before class, and participate actively during
class.
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When preparing the case for class, you should do the appropriate analytical, financial and
quantitative analyses to arrive at your conclusions. At times, it may be appropriate to visually
present these quantitative analyses to the class. Preparation of the case with your group is
highly recommended.
It is expected that all groups will work on every case, irrespective of whether you turn in a
written document or not. Towards determining the level of detail that we may need to discuss
the case in class, I will require that every group send me an e-mail (feedback) with some key
information that they have derived as part of their analysis. You will be notified as to the
specifics of this feedback for each case around a week prior to the submission. This specific
feedback will not have any impact on your grade. However, it will help you to actively
participate during class.
I will take detailed notes on student participation/answers to questions. These notes will be
made right after class and will form the basis of the ‘participation’ grade. Also, it goes without
saying that attendance is essential during the sessions that we have together, and is necessary
for a high score on the participation component of the final grade. Please let me know if you
are unable to attend any of the classes.
Input for this participation grade will also come from peer class participation evaluations. A
form for this input is attached to this syllabus. On this form, students will be asked to list up to
eight people in the class who, in their opinion, consistently demonstrated excellent class
participation throughout the quarter. Students may not list themselves on this form. For
accounting purposes, each student will need to sign their form. Students who fail to turn in this
form cannot receive the highest class participation grade. Needless to say, student evaluations
will be kept confidential.
FINAL EXAM
The take-home final exam will focus on evaluating your understanding of the concepts
discussed in class (based on the cases and readings). The exam may consist of mini-cases with
specific questions and/or essay-type questions dealing with course cases/material.
There will be no mid-term exam for the course.
GUEST LECTURERS
Towards enhancing the learning opportunity in this course, we will have the following
individuals participate in class:

Prof. J. Richard Dietrich - Chair, Accounting and MIS (Conduct Birch Paper)

Mr. Darren Cherry, Grief Brothers (Discuss Profit Planning and Performance
Evaluation)
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ABOUT YOUR INSTRUCTOR
With over 30 years of experience in industry, Mr. Mulchandani brings extensive knowledge of
the “real world” towards teaching in the Business curriculum. Joining Rockwell International
soon after obtaining his MBA, Mr. Mulchandani had assignments in several functional areas of
the Company, including Finance, Accounting, Materials/Logistics and Manufacturing. After
three years as a Division General Manager, he was named President of the Commercial Vehicle
Systems Business ($3.5 billion in Revenue), from which he retired in December 2000.
During his tenure in industry, Mr. Mulchandani actively participated in several global joint
ventures, some of which he was instrumental in setting up. In addition, he has experienced
being part of a spin-off into a separate automotive company, which later merged with another
company for economic scale.
In Spring 2001, Mr. Mulchandani entered the Masters of Accounting (MAcc) program at The
Ohio State University, which he completed in June 2002. As a faculty member of the AMIS
Department since then, Mr. Mulchandani teaches, or has taught, undergraduate financial and
managerial accounting courses, Managerial Accounting in the MBA core, an MBA elective
(Implementing Corporate Strategy), and the MAcc/MBA Elective (AMIS 823) at the Fisher
College of Business.
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MANAGERIAL ACCOUNTING FOR DECISION MAKING
AMIS 823 - SPRING 2008
CLASS SCHEDULE
Monday, March 24
Topic: Course Introduction
Case:
None
Read: None
Wednesday, March 26
Topic: Measuring Product Costs
Case:
Seligram, Inc.; Electronic Testing Operations
Read: (1) Accounting Bores You? Wake Up (Hand-out)
(2) You Need a New Cost System When …, Robin Cooper, Harvard Business Review,
January-February 1989.
Monday, March 31
Topic: Cost Behavior, Capacity Analysis and the Downward Demand Spiral
Case:
Bridgeton Industries: Automotive Component & Fabrication Plant
Read: (1) How Cost Accounting Distorts Product Costs (Hand-out)
(2) One Cost System Isn’t Enough, Robert Kaplan, Harvard Business Review, JanuaryFebruary 1998.
Wednesday, April 2
Topic: Activity-Based Costing
Case:
Destin Brass Products Co.
Read: Introduction to Activity-Based Costing (Course Packet)
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Monday, April 7
Topic: Comparing Traditional and Activity-Based Costing
Case:
John Deere Component Works (A)
Read: Measure Costs Right: Make the Right Decisions, Robin Cooper and Robert Kaplan,
Harvard Business Review, September-October 1988
Wednesday, April 9
Topic: Operating Decisions
Case:
Hilton Manufacturing Company
Read: None
Monday, April 14
Topic: Relevant Costs for Decision-Making
Case: Salem Telephone Company
Read: None
Wednesday, April 16
Topic: Cost-Volume-Profit Analysis
Case:
Caribbean Internet Café
Read: None
Monday, April 21
Topic: Profit Planning and Budgeting
Case: Cafes Monte Bianco: Building a Profit Plan
Read: Conflicting Roles in Budgeting for Operations, Edgar Barrett and Leroy Fraser, Harvard
Business Review, July-August 1977.
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Wednesday, April 23
Topic: Variance Analysis - Lecture
Case:
None
Read: None
Monday, April 28
Topic: Profit and Cost Center Performance Evaluation
Case: Compagnie du Froid, S.A.
Read: None
Wednesday, April 30
Topic: Guest Speaker, Mr. Darren Cherry, Grief Inc.
Case:
None
Read: None
Monday, May 5
Topic: Production Volume Variance
Case: Polysar Limited
Read: None
Wednesday, May 7
Topic: Pricing Decisions
Case: Kanthal (A)
Read: Manage Customers for Profits (Not Just Sales), Benson Shapiro and et. al., Harvard
Business Review, September-October, 1987.
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Monday, May 12
Topic: Transfer Pricing (class to be conducted by Prof. J.R.Dietrich)
Case:
Birch Paper Company
Read: Transfer Pricing in the 1990s (Hand-out)
.
Wednesday, May 14
Topic: Strategy Implementation and the Balanced Scorecard
Case:
Citibank: Performance Evaluation
Read: The Balanced Scorecard-Measures that Drive Performance, Robert Kaplan and David
Norton, Harvard Business Review, January-February 1992.
Monday, May 19
Topic: Management Control Systems
Case:
Nordstrom: Dissention in the Ranks? (A)
Read: (1) Creating a Comprehensive System to Measure Performance (Hand-out)
(2) Control in an Age of Empowerment, Robert Simons, Harvard Business Review,
March-April 1995.
Wednesday, May 21
Topic: Executive Performance Measurement and Compensation
Case: Vyaderm Pharmaceuticals
Read: What is EVA, and How Can It Help Your Company (Hand-out)
Monday, May 26
HOLIDAY – NO CLASS
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Wednesday, May 28
Topic: Capital Budgeting Decisions
Case:
The Super Project
Read: Why CFO’s Use Different Tools for Capital Budget Analysis (Hand-out)
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CASE STUDY QUESTIONS
Seligram, Inc.: Electronic Testing Operations
1. What caused the existing system at ETO to fail?
2. Calculate the reported cost of the five components listed in Exhibit 6 using:
a. The existing system.
b. The system proposed by the accounting manager.
c. The system proposed by the consultant.
3. Which system is preferable? Why?
4. Would you recommend any changes to the system you prefer? Why?
5. Would you treat the new machine as a separate cost center or as a part of the main test room?
Bridgeton Industries: Automotive Component & Fabrication Plant
1. The official overhead allocation rate used in the 1987 model year strategy study at the
Automotive Component and Fabrication Plant (ACF) was 435% of direct labor cost.
Calculate the overhead allocation rate using the 1987 model year budget. Why do you get
different numbers?
2. Calculate the overhead allocation rate for each of the model years 1988 through 1990. Are
the changes since 1987 in overhead allocation rates significant? Why have these changes
occurred?
3. Consider two products in the same product line:
Expected Selling Price
Standard Material Cost
Standard Labor Cost
Product 1
Product 2
$62
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6
$54
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Calculate the expected gross margins as a percentage of selling price on each product based
on the 1988 and 1990 model year budgets, assuming selling price remains constant and
material/labor costs do not change from standard.
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4. Are the product costs reported by the cost system appropriate for use in the strategic
analysis?
5. Assume that the selling prices, volumes, and material costs for the 1991 model year will not
change for fuel tanks and doors produced by the ACF of Bridgeton Industries. Assume also
that if manifolds are produced, their selling prices, volume, and material costs will not change
either.
a. Prepare an estimated model year budget for the ACF in 1991
(1) if no additional products are dropped.
(2) if the manifold product line is dropped.
Explain any additional assumptions you make in preparing your estimated model year
budgets.
b. What will be the overhead allocation rate under the two scenarios?
6. Would you outsource manifolds from the ACF in 1991? Why, or why not? What more
information would you want before reaching a final decision?
Destin Brass Products Co.
1. Use the Overhead Cost Activity Analysis in Exhibit 5 and other data on manufacturing costs
to estimate product costs for valves, pumps, and flow controllers.
2. Compare the estimated costs you calculate to existing standard unit costs (Exhibit 3) and the
revised unit costs (Exhibit 4). What causes the different product costing methods to produce
such different results?
3. What are the strategic implications of your analysis? Could the production process for flow
controllers be changed in such a way to allow Destin Brass Products to reduce the unit cost of
flow controllers? How would the change in the lot size for flow controller production affect
unit costs? Has Destin Brass Products adopted the most profitable distribution system in the
flow controller market? What actions would you recommend to managers at Destin Brass
Products Company?
4. Assume that the interest in a new basis for cost accounting at Destin Brass Products remains
high. In the following month, quantities produced and sold, activities, and costs were all at
standard. How much higher or lower would the net income reported under the activitytransaction-based system be than the net income that will be reported under the present, more
traditional system? Why?
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John Deere Component Works (A)
1. How did the competitive environment change for the John Deere Component Works between
the 1970’s and the 1980’s?
2. What caused the existing cost system to fail in the 1980’s? What are the symptoms of cost
system failure?
3. How were the limitations of the existing cost system overcome by the ABC system?
4. Compare the cost of Product A103 (see Exhibit 11) under the existing cost system and under
the ABC approach.
Hilton Manufacturing Company
1. If the company had dropped Product 103 as of January 1, 1991, what effect would that action
have had on the $158,000 profit for the first six months of 1991?
2. In January 1992, should the company reduce the price of product 101 from $9.41 to $8.64?
3. What is Hilton’s most profitable product?
4. What appears to have caused the return to profitable operations in the first six months of
1991?
Salem Telephone Company
1. “Revenue hours” represent the key activity that drives costs at Salem Data Services. Which
expenses in Exhibit 2 are variable with respect to revenue hours? Which expenses are fixed
with respect to revenue hours?
2. For each expense that is variable with respect to revenue hours, calculate the cost per
revenue hour.
3. Create a contribution margin income statement for Salem Data Services. Assume that intercompany usage is 205 hours. Assume commercial usage is at the March level.
4. Assuming the intracompany demand for service will average 205 hours per month, what
level of commercial revenue hours of computer use would be necessary to break even each
month. Since the intracompany demand is known to be 205 hours, the contribution from
these sales is assured to cover a portion of the fixed costs. Thus, to determine the level of
commercial revenue hours required to break even, the contribution from commercial sales
only needs to cover the fixed costs remaining after subtracting the fixed costs already
covered by the contribution from intracompany sales.
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5. Estimate the effect on income of each of the options Flores has suggested if Wu estimates
them as follows:

Increasing the price to commercial customers to $1,000 per hour (this would reduce
external demand by 30%).

Reducing the price to commercial customers to $600 per hour (this would increase
external demand by 30%).

Increased promotion would increase revenue hours by up to 30%. Wu is unsure how
much promotion this would take. (How much could be spent and still leave Salem Data
Services with no reported loss each month if commercial hours were increased 30%?).
6. Based on your analysis above, is Salem Data Services really a problem to Salem Telephone
Company? What should Flores do about Salem Data Services?
7. Can you suggest changes in the accounting system that would result in more useful
information for Flores and Wu?
Caribbean Internet Café
1. What managerial issues should David Grant consider before starting the Caribbean Internet
Café?
2. Define the fixed, variable and start-up costs in this case.
3. What will be the costs for the very first customer?
4. What is the contribution margin per customer?
5. How many customer visits will CIC need in order for the café to break-even in the first year?
6. How many customer visits will CIC need in order for the café to break-even in year two?
7. Should Grant proceed with the venture?
Cafes Monte Bianco: Building a Profit Plan
1. Use a profit plan model to evaluate the attractiveness of switching all production to private
brand coffee. Estimate key accounting variables relating to profitability and cash flow for
this alternative.
2. Based on your analysis, what recommendations would you make to Giacomo Salvetti?
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3. What assumptions did you make to complete your analysis? How critical are these
assumptions to your conclusions?
4. Prepare a list of additional assumptions that you would ask for to improve the quality of your
analysis.
5. Analyze the profitability of a mixed strategy where the company would sell Grade “A”
coffee with an advertising level of 7% and the rest of the production would be devoted to
private brand coffee.
Compagnie du Froid, S. A.
1. How would you explain the difference between the Italian region’s expected and actual
profit?
a) What was the impact of the change in sales volume?
b) What was the impact of the change in the prices charged for ice-cream and specialties?
c) What was the impact of the changes in the cost of raw materials, labor, and fixed costs?
d) How much of the changes in the cost of raw material and labor are due to changes in the
prices of the raw materials and wages of labor, and how much are due to manufacturing
efficiencies?
2. How would you evaluate the performance of the manager of the Italian Region?
3. How would you evaluate the performance of the French and Spanish managers? How would
you account for the ice-cream transfer from France to Spain?
4. What problems is Jacques Trumen facing?
5. What would you recommend to him?
Polysar Limited
1. Prepare a presentation for the Polysar Board of directors to review the performance of the
NASA Rubber Division. Pay particular attention to questions that may be raised concerning
the accuracy and meaning of the volume variance.
2. What is the best sales and production strategy for EROW Division? NASA Division? Rubber
Group in total?
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3. What changes, if any, would you recommend be made in the management accounting
performance system to improve the reporting and evaluation of the Rubber Group
performance?
Kanthal (A)
1. What was the Kanthal president, Ridderstrale, attempting to accomplish with the Account
Management System? Are these sensible goals?
2. Why did Ridderstrale feel that the previous cost system was inadequate for the new strategy?
Why could there be hidden profit and hidden loss customers with the previous cost system?
What causes a customer to be a “hidden loss” customer?
3. How does the new Kanthal 90 Account Management System work? What new features does
it offer? What are its limitations that may limit its effectiveness?
4. Consider a product line whose products generate a 50% gross margin (after subtracting
volume-related manufacturing and administrative expenses from prices). The cost for
handling an individual customer order is SEK 750, and the extra cost to handle a production
order for a non-stocked item is SEK 2,250.
a) Compare the net operating profits of two orders, both for SEK 2,000. One order is for a
stocked item and the other is for a non-stocked item.
b) Compare the operating profits and profit margins of two customers, A and B. Both
customers purchased SEK 160,000 worth of goods during the year. A’s sales came from
three orders, for three different non-stocked items. B’s sales came from 28 orders, of which
6 were for stocked items and 22 for non-stocked items.
5. What should Ridderstrale do about the two large unprofitable customers revealed by the
account management system?
Birch Paper Company
1. Birch Paper’s president (not named in the case) is concerned that using divisional profits for
performance evaluation is not maximizing the overall profit of the firm. Write a 1 to 2 page
memo explaining the strengths and weaknesses of this method of evaluation.
2. Recommend policies that Birch Paper could adopt to improve corporate profits when transfer
pricing issues arise. Justify your recommendations using (analyzing) the bids received by Mr.
Kenton.
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Citibank: Performance Evaluation
1. Why has Citibank introduced a performance scorecard?
2. Complete the performance evaluation form (Exhibit 1) for James McGaran.
3. What would you say to McGaran in his performance review meeting?
4. Would you roll this performance scorecard to other regions at Citibank? What changes, if
any, would you make to it?
Nordstrom: Dissention in the Ranks? (A)
1. What is the cause of the problems described in the case? How serious are these problems?
2. Are Nordstrom employees pressured inappropriately by the sales-per-hour system? By
management?
3. How effective is the memo reproduced as Exhibit 3 in clarifying the distinction between
“sell” and “nonsell” time?
4. How would you change management systems at Nordstrom?
Vyaderm Pharmaceuticals
1. Using data from the case Exhibit 8, calculate the following items:
a) 2000 EVA for the North American Dermatology Division.
b) 2000 EVA bonus payout for a manager earning $200,000, assuming that the
manager’s bonus is based 100% on the Division’s EVA?
c) 2001 EVA and estimated bonus payout for the same manager, assuming that
Vyaderm profits fall back to historical levels and the EVA improvement goal remains
constant.
2. Based on your analysis, what would you recommend to Mr. Vedrine?
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The Super Project
1. What are the relevant cash flows for General foods to use in evaluating the Super Project? In
particular, how should management deal with issues such as;
a) Test marketing expenses?
b) Overhead expenses?
c) Erosion of Jell-O contribution margin?
d) Allocation of charges for the use of excess agglomerator capacity?
2. How attractive is the investment as measured by various capital budgeting techniques (i.e.
accounting rate of return, payback period, internal rate of return, net present value)? How
useful are each of these measures of investment attractiveness?
3. How attractive is the Super project in strategic and competitive terms? What potential risks
and benefits does General Foods incur by either accepting or rejecting the project?
4. Should General Foods proceed with the Super project? Why, or why not?
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Group Self-Evaluation Form
You have 100 group participation points to allocate to members of your group. If you believe
that each member of your group participated equally in this group project, then you should
assign each member of the group the same number of points. If one or more members of the
group did not contribute equally, you should assign fewer points to them and more points to
members of the group who contributed more to this project. In any case, the total number of
points you allocate to members of your group must sum to 100. PLEASE PRINT NEATLY.
1. Your Name:
___________________________________________________________________
2. The Name of the Case:
___________________________________________________________
3. List the names of the people in your group (besides yourself), and the group participation
points you would assign to each. Remember, total Group Participation Points must sum to 100.
Members of Your Group
Group Participation Points
1. _______________________________________
__________
2. _______________________________________
__________
3. _______________________________________
__________
4. _______________________________________
__________
100 points
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Peer Class Participation Evaluation Form
Your name:
______________________________________________________________________
(Print)
Please list up to eight people in the course who, in your opinion, demonstrated consistent
excellent class participation throughout the quarter. Do not list your own name. Please sign
your name at the bottom of this form.
As a reminder, excellent class participation is defined as: a student consistently attends class,
consistently and appropriately contributes to case discussions, and occasionally contributes
unusually insightful comments in these discussions. Please print legibly!
1. _______________________________________
2. _______________________________________
3. _______________________________________
4. _______________________________________
5. _______________________________________
6. _______________________________________
7. _______________________________________
8. _______________________________________
_____________________________________________
Sign here
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