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The note describes a short-run operating decision-making model that may be used to evaluate alternate courses of action. The note covers qualitative versus quantitative analysis, relevant costs for the model, and differential investments. As well, cost behaviour, financial charges on new investments and divestments are also covered.

Focuses on analyzing the growth potential of the company using the company's financial statements.

Spreadsheet Supplement for case 190090

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 suspect that cost accounting and cost allocations to products may be to blame. Two volume-based systems are described and illustrated.

Wisconsin Central Ltd. is a regional railroad formed in a leveraged buyout, which is currently in default on its loan covenants. The case uses this situation to examine the financial structure of a typical LBO association and its internal control mechanisms and distinct role of the board of directors.

Describes the resolution of the default situation. Further examines the internal control mechanisms and distinct role of the board of directors of a typical LBO association.

Spreadsheet Supplement for case 190062.

Spreadsheet Supplement for case 190053.

Illustrates how ADP's top management uses formal planning and control systems to establish strategic boundaries for its business units. Top management has developed a detailed list of strategic criteria that ADP managers use to evaluate products and business units, as well as acquisition and divestiture candidates. Focuses on whether ADP should divest a profitable business that is drifting outside defined strategic boundaries.

Illustrates the management control challenges that are associated with rapid growth and geographic expansion. Situated at an offsite Executive Committee Retreat. The three founding partners of a specialized consulting firm are grappling with several difficult questions and problems: 1) the tension between local office autonomy, entrepreneurship, and the need for a unified firm strategy; 2) the increasing need for standardized ways to monitor rising costs, capacity utilization, and new business development; 3) redefining the role of the Executive Committee and the role of formal systems as the partnership continues to grow.

Shareholder value analysis (SVA) applies the concept of discounted cash flow analysis to a wide range of business decisions. It is a better decision-making guide than conventional accounting analyses because it takes into account effects on the balance sheet and the time value of money. It also reflects cash flows over time. When used to guide decisions throughout a company, it ensures that the whole organization is focused on creating shareholder value rather than growth for growth's sake or earnings per share. Companies that want to use SVA must build the skills and create the incentives to institutionalize it. A case study provides an example of the use of SVA.

The company as part of a commitment to Total Quality Management has installed a computer system that accumulates 30,000 observations on its processes every 2-4 hours. Operating people have found the monthly summaries of financial performance not too useful in this environment. Recently a department manager has created a daily income statement for his operators. Case explores role for financial summary information in an environment where extensive, timely data on product processes and products already exist.

Explores how a cost system can help support a firm's decision to change strategies. In the process, students are exposed to a simple activity-based cost system. Also examines Siemens policy for transferring products between sales and manufacturing divisions. Transfer pricing is based on standard costs generated from their cost system. The case is unique in that the organizational linkage between the product costing system and the transfer pricing system is explored.

Depreciation policies of Delta Air Lines and Pan Am Corp. are compared and contrasted against a summary of operating data from each airline. Questions with the case require projection of future depreciation on a new aircraft using the policies of each company.

Bellcore's four service centers were charging unrealistically high prices internally. The transfer pricing system was at fault. Its four service centers were people intensive, and overhead costs were allocated on the basis of total head count. Rental rates were a companywide average and did not distinguish open space from labs or computer rooms, which are more expensive to maintain. By making some simple adjustments, Bellcore made the system more accurate, allocating overhead according to the proportion of technical and administrative professionals in a department and rental rates according to the kind of building space.

Multinational company needs an improved cost system to determine the profitability of individual customer orders. Its strategy is to have significant sales and profitability growth without adding additional administrative and support people. The new cost system assesses a charge to each customer order received and an additional surcharge if the item ordered is not normally stocked. The goal is to direct sales resources to the most profitable customers: those who buy standard products in large predictable quantities with minimal demands on technical resources.

Describes actions taken by senior management of Kanthal after seeing the results of the newly installed account management system. Designed as a class handout. A rewritten version of an earlier case by the same author.

A start-up video rental business is described to provide a basis for a bookkeeping and financial reporting exercise for an accounting course. Both start-up and operating transactions are included along with situations requiring judgments about depreciation policies and end-of-period adjustments.

A division questions whether to retain, modify, or abandon its cost of quality system now that more direct measures of quality have been adopted. Discusses the role of quality cost measurement in a mature quality management system.

A privately owned German power tool company was dissatisfied with its existing cost system. The system could not produce timely accurate reports on cost center operations, and newly purchased automated machines were attracting large overhead costs. A new, highly automated system was designed and installed that used 600 cost centers and an appropriate activity base chosen for each center. The case shows the design of a highly accurate cost control system with flexible budgets used in both support and production cost centers.