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Management Accounting: A Strategic Focus
Shahid Ansari, California State University - Northridge
Janice Bell, California State University - Northridge
Thomas Klammer, University of North Texas
Descriptions of Modules

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Manufacturing Overhead Allocation: Traditional Versus Activity-Based

Activity-Based Budgeting

Activity-Based Management

Cost Measurement Systems: Traditional and Contemporary Approaches

Indirect Costs

Management Accounting in the Age of Lean Production

Measuring and Managing Capacity

Measuring and Managing Quality Costs

The Organizational Role of Management Accountants

Measuring and Managing Environmental Costs

Strategy and Management Accounting (FREE Chapter Download!)

Target Costing

Theory of Constraints and Throughput Accounting

The Kaleidoscopic Nature of Cost

The Capital Budgeting Process

Value Chain and Strategic Cost Management

Standard Costing as a Cost Management Tool

Cost Volume and Profit Analysis

Customer Profitability Analysis

Business Process Reengineering

Cost Estimation Methods


Manufacturing Overhead Allocation: Traditional Versus Activity-Based, Version 1.0
By Jan Bell and Shahid Ansari, California State University, Northridge

The purpose of this module is to describe the nature and types of manufacturing overhead costs and to compare and contrast the two major methods of allocating such costs to products - the traditional volume-based and the more recent activity-based cost allocation methods. Each method is discussed in terms of when its use is appropriate for determining manufacturing costs of products. Also considered are the technical, behavioral and cultural attributes of these methods in making a choice between them. The module covers:
  • The nature and components of manufacturing overhead costs.
  • The basics of allocating manufacturing overhead costs.
  • The traditional volume-based overhead allocations methods.
  • The more recent activity-based allocation methods.
  • A comparison of the traditional volume and activity-based allocation methods.
  • Desirable technical, behavioral and cultural properties of an allocation scheme.
Table of Contents
Strategic Implications of Overhead-Cost Allocations
Purpose of this Module
Nature and Components of Manufacturing Overhead Costs
Basics of Overhead Allocation
Department-Based Overhead Allocation
     Illustration of Traditional Volume-Based Allocation Systems
Activity-Based Overhead Allocation
Comparison of Traditional and ABC Overhead Allocations
     Types of Cost Drivers Used
     Focus of the Costing System
     Steps in the Allocation Process
Evaluation of Allocation Methods
     Technical Attributes
     Behavioral Attributes
     Cultural Attributes
Lessons Learned
Appendix - Other Departmental Overhead Allocation Methods
     Step Down Method
     Simultaneous Allocation Method
Common Terms
Problems and Cases-Introductory Level
Problems and Cases-Advanced Level
     Case 1: Blue Ridge Manufacturing
     Case 2: Piedmont Siding
     Case 3: Guys and Dolls

Activity-Based Budgeting, Version 1.0
By Thomas Klammer, Shahid Ansari, and Jan Bell

This module focuses on the annual budget which is an important element of the overall budget process. The discussion illustrates the strategic importance of budgeting and identifies the technical, behavioral, and cultural properties of the annual budget. Specifically, the module covers:
  • The strategic context of the annual budget.
  • The overall annual budget process in organizations.
  • The detailed processes of building an annual budget.
  • The conversion of budgets into financial statements.
  • The properties of a good budget process.
Table of Contents
Budgeting and the Strategic Triangle
Purpose of this Module
Strategy and Annual Budgeting
Annual Budget Process-An Overview
Budgeting at True Sound-An Illustration
Setting the Budget Context
Detailed Budget Preparation
     The Sales (Revenue) Budget
     The Cash Inflow Budget
     Developing a Production Budget
     The Consolidated Activity Budget
     Converting Activity Budgets into Traditional Financial Budgets
Review and Approval of Budgets
Properties of a Good Budget Process
     Technical Attributes
     Behavioral Attributes
     Cultural Attributes
Lessons Learned
Appendix A-Competitive Strategy and SWOT Analysis
Common Terms
Problems and Cases-Introductory Level
Problems and Cases-Advanced Level

Activity-Based Management (ABM), Version 1.0
By Shahid Ansari, Jan Bell, Thomas Klammer, Carol Lawrence

ABM refers to analysis and costing of activities in order to improve work processes in an organization. This module explains how to use ABM to improve organizational performance and manage costs. In ABM analysis, the cost object is an activity. This costing of activities is the first
Step in managing activities and in costing secondary cost objects such as products, services, or customers. The module covers:
  • The history of ABM.
  • The nature and purpose of ABM.
  • The Steps in performing ABM.
  • How to identify inputs, outputs, resources consumed, and performance measures for activities.
  • How to use ABM information to recommend improvements in activities.
  • How to collect detailed information from employees about activities.
  • The technical, behavioral, and cultural attributes of ABM.
  • Relationship of ABM to other management accounting issues.
Table of Contents
Strategic Implications of Activity-Based Information
Purpose of this Module
A Brief History of Activity-Based Management
Nature and Purpose of ABM
Steps in Activity-Based Analysis
Performing Activity-Based Analysis-An Illustration
  1. Obtaining Financial Information
  2. Determine Major Processes
  3. Identify Process Inputs and Outputs
  4. Determine Activities and Tasks in Each Process
  5. Identify Resources Used by Activities
  6. Define Output Measures for Activities
  7. Define Performance Measures for Activities
  8. Record Actual Performance on Each Activity
  9. Determine How Well Activities Are Being Performed
  10. Brainstorm Improvement Ideas
Collecting Data About Activities
Evaluation of Activity-Based Management
     Technical Attributes
     Behavioral Attributes
     Cultural Attributes
Other Related Issues
Lessons Learned
Common Terms
Problems and Cases-Introductory Level
Problems and Cases-Advanced Level

Cost Measurement Systems: Traditional and Contemporary Approaches, Version 1.0
By Shahid Ansari, Carol Lawrence

This module discusses traditional cost measurement systems such as job order and process costing and then contrasts it with contemporary activity/operations-based cost measurement systems. It presents how the nature of a product and the manufacturing process determine the type of cost measurement systems needed. The module reveals how mass production systems gave rise to traditional costing systems and how the advent of modern manufacturing systems have shaped contemporary cost measurement systems.

Table of Contents
Strategic Importance of Cost Measurement Systems
Nature of a Cost Measurement System
     Cost Object Selection
     Procedures for Tracking Cost Flows
     Cost Allocation
     An Example
Influences on Cost Measurement Systems
     Type of Outputs
     Production Methods
     Influence on Cost Measurement Systems
Traditional Cost Measurement Systems
     Job-Order Costing-Alfa Laval
     Process Costing at Robins
     Inventory Issues in Traditional Cost Systems
     Weaknesses in Traditional Cost Systems
Contemporary Cost Measurement Systems
     Alfa Laval-An Activity and Operations Costing View
     Robins-An Activity and Operations Costing View
     Comparison of Traditional and Contemporary Cost Systems
Attributes of a Cost Measurement System
     Technical Attributes
     Behavioral Attributes
     Cultural Attributes
Lessons Learned
Appendix: Cost Tracking-Technical Issues
     Cost Flows and the Chart of Accounts
     Account Codes
Common Terms
Problems and Cases-Introductory Level
Problems and Cases-Advanced Level
     Case 1: Yamazoo Waverunner Manufacturers
     Case 2: Logic Conductors

Indirect Costs, Version 1.1
By Shahid Ansari, Jan Bell, Thomas Klammer, and Carol Lawrence

This module explains the measurement and allocation of indirect costs and introduces the conceptual issues related to indirect costs. Specific types of allocation schemes used in organizations are discussed in other modules. The module presents:
  • The nature of indirect costs.
  • The types of indirect costs and where each occurs in an organization.
  • Common terminology used to describe the indirect costs of an organization.
  • Why and how to allocate indirect costs.
  • How far in the organization to extend allocations of indirect costs.
  • Technical, behavioral, and cultural attributes of alternative allocation schemes.
  • Criteria for selecting among allocation schemes.
  • Nonmanagement uses of allocations, including government contracting and external financial reporting.
Table of Contents
Strategic Implications of Indirect Costs
Purpose of this Module
The Nature of Indirect Costs
     Where do Indirect Costs Occur in Organizations?
Allocation of Indirect Costs
     Why allocate?
     How to allocate
     How Far Should Allocations of Indirect Costs Extend?
Choice of an Allocation Scheme
     Technical Attributes
     Behavioral Attributes
     Cultural Attributes
Choosing an Allocation Method
Using Allocation in Other Areas
     Allocations and External Financial Reporting
     Allocations in Government Contracting
Lessons Learned
Problems and Cases-Introductory Level
Problems and Cases-Advanced Level
     Case 1: Stealthy Vs. U.S. Air Force
     Case 2: ProSport

Management Accounting in the Age of Lean Production, Version 1.1
By Shahid Ansari, Jan Bell, Thomas Klammer, Carol Lawrence

This module illustrates how an organization's environment, strategic choices, and production methods influence the design of its management accounting system. The primary focus is on comparing how mass and lean production methods affect a firm's cost structure and its management accounting system. The module covers:
  • The determinants of cost structure and management accounting systems.
  • How environment affects the choice of production methods.
  • Structural differences between mass and lean production systems.
  • Work process differences between mass and lean production systems.
  • The cost structure differences between mass and lean production systems.
  • Management accounting systems in mass and lean production environments.
  • Technical, behavioral, and cultural attributes of management accounting systems that support mass and lean systems.
Table of Contents
Strategic Implications of Production Processes
Purpose of this Module
Determinants of Cost Structures and Management Accounting Systems
Types of Production Methods
Structural Differences-Mass and Lean Production
Work Process Differences-Mass and Lean Production
Cost Structure-Mass Production
     Why Volume Lowers Unit Cost
Cost Structure-Lean Production
     Why Unit Costs are Lower with Lean Production
Management Accounting Information-Mass Versus Lean Production
Technical Attributes-Mass and Lean Management Accounting Systems
     Decision Relevance
     Process Understanding
Behavioral Attributes-Mass and Lean Management Accounting Systems
     Behavioral Assumptions-Mass and Lean
     Behavioral Consequences-Mass and Lean
Cultural Attributes-Mass and Lean Management Accounting Systems
Lessons Learned
Common Terms
Solution-Cost When Production Volume is 100,000 Units
Common Terms
Problems and Cases-Introductory Level
Problems and Cases-Advanced Level
     Case 1: Ingot Can Company
     Case 2: Freedom Jeans, Inc.

Measuring and Managing Capacity, Version 1.1
By Shahid Ansari, Jan Bell, Thomas Klammer, Carol Lawrence

This module describes two methods of measuring capacity and demonstrates how each helps in managing capacity. It covers:
  • The nature and types of capacity.
  • Traditional ways of measuring and assigning capacity costs.
  • A new approach to measuring capacity developed by CAM-I.
  • Technical, behavioral, and cultural attributes of capacity measures.
  • Some of the practical complexities of implementing capacity measures in organizations.
Table of Contents
Strategic Implications of Capacity Measurement
Purpose of this Module
What is Capacity?
Measuring and Assigning Capacity Cost
     Traditional Ways of Measuring Capacity
     Effect of Traditional Capacity Measures on Product Cost
     A Modern Approach-The CAM-I Capacity Model
     Expanded Version-CAM-I Model
     Cost Management Implications of the CAM-I Model
Attributes of Capacity Measurement Approaches
     Technical Attributes
     Behavioral Attributes
     Cultural Attributes
Complications in Measuring Capacity
Lessons Learned
Answer to Think Along
Common Terms
Problems and Cases-Introductory Level
     Team Projects
Problems and Cases-Advanced Level
     Case 1: Special Purpose Theme Park
     Case 2: INFO Department-Capacity Analysis
     Case 3: Golf Course

Measuring and Managing Quality Costs, Version 1.1
By Shahid Ansari, Jan Bell, Thomas Klammer, Carol Lawrence

This module discusses how to measure and report quality costs to achieve the quality goals of an organization. It covers:
  • Why there is greater interest n measuring quality costs today.
  • The nature of and reasons for measurement of quality costs.
  • The typical steps in a quality management system.
  • How to measure quality costs.
  • How to use cost data to manage quality in an organization.
  • The technical, behavioral, and cultural properties of a quality costing system.
Table of Contents
Strategic Implications of Quality Costs
Purpose of this Module
How Has Interest in Measuring Quality Cost Developed?
The Nature of Quality Costs
The Quality Management System
  1. Understand Customer Requirements
  2. Establish Quality Goals
  3. Set Work Processes to Meet Quality Goals
  4. Perform Work and Monitor Output
  5. Deliver Product and Monitor Customer Experience
  6. Perform Root Cause Analysis
Measuring Quality Costs-An Illustration
     DFP's Assembly Department Quality Costs
Firm-Wide Analysis of Quality Costs
Using Quality Cost Data to Manage Quality
     Firm-Wide Spending on Quality
     Spending on Quality by Categories
     Financial Returns from Quality Costs
     Quality Spending and Customer Satisfaction
     Root Cause Analysis of Quality
Properties of a Quality Cost System
     Technical Attributes of a Quality Cost System
     Behavioral Attributes of a Quality Cost System
     Cultural Attributes of a Quality Cost System
Lessons Learned
Common Terms
Problems and Cases-Introductory Level
Problems and Cases-Advanced Level
     Case 1: Cascade Seating
     Case 2: Nuclear Safety Research, Inc.

The Organizational Role of Management Accountants, Version 1.0
By Patrick Keating and Shahid Ansari

This module discusses the role of management accountants in contemporary organizations. It shows the evolution of management accountants from neutral scorekeepers to business advocates who proactively shape and support objectives. The module covers:
  • The historical role of the management accountant.
  • Forces causing change in the role of the management accountant.
  • The dual role of management accountants as business advocates and corporate cops.
  • The paths for becoming a management accountant.
  • The knowledge, skills, and experiences required for being a successful management accountant.
  • The technical, behavioral, and cultural attributes of the new management accountant.
Table of Contents
Management Accountants and the Strategic Triangle
Purpose of this Module
The Changing Nature of Management Accounting Work
     Advanced Information Technology
     Global Competition
The Roles of Management Accountants
     Corporate Cops
     Business Advocates
The Challenge of Dual Accountability
The Making of a Management Accountant
     Professional Knowledge and Certification
     Skills and Abilities
Attributes of the New Management Accountant
     Technical Attributes
     Behavioral Attributes
     Cultural Attributes
Lessons Learned
Common Terms
Problems and Cases-Introductory Level
Problems and Cases-Advanced Level
     Case 1: New Age Manufacturing, Inc.

Measuring and Managing Environmental Costs, Version 1.1
By Shahid Ansari, Jan Bell, Thomas Klammer, Carol Lawrence

This module deals with the measurement and management of environmental costs. It covers:
  • Why there is an increased interest in environmental management.
  • Terminology used in the area of environmental management.
  • How to collect, classify, measure, and report environmental costs.
  • How to manage environmental costs by making them a part of organizational decision making.
  • Technical, behavioral, and cultural attributes of environmental costing.
Table of Contents
Strategic Implications of Environmental Costs
Purpose of this Module
How Has Interest in Environmental Costs Developed?
The Nature of Environmental Costs
Measurement and Reporting of Environmental Costs
     Determining Total Environmental Costs.
     Determining Reasons for Environmental Spending
     Reporting Environmental Costs
Managing Environmental Costs
Attributes of An Environmental Cost System
     Technical Attributes
     Behavioral Attributes
     Cultural Attributes
Role of the Management Accounting
Lessons Learned
Common Terms
Problems and Cases-Introductory Level
Problems and Cases-Advanced Level
     Case 1: Chesterfield Municipal Landfill
     Case 2: Bryan Aerospace, Inc.

Strategy and Management Accounting, Version 1.1
By Shahid Ansari, Jan Bell, Thomas Klammer, and Carol Lawrence

This module focuses on the importance of a good management accounting system for accomplishing key organizational objectives. It discusses the information the firm needs to help it produce low cost products, maintain quality, deliver on time, and keep up with the pace of innovation. The module covers:
  • What is management accounting and what role does it play in an organization?
  • What are the attributes of a good management accounting system?
Table of Contents
Purpose of this Module
What is Management Accounting?
Nature and Scope of Management Accounting
Purpose of Management Accounting-The Strategic Triangle
The Nature of Strategic Management Accounting
Attributes of a Good Management Accounting System
Using the Triangles to Evaluate Management Accounting Methods
Lessons Learned
Common Terms
Problems and Cases-Introductory Level
Problems and Cases-Advanced Level
     Case 1: Vincent's Cappuccino Express

Target Costing, Version 1.1
By Shahid Ansari, Jan Bell, Thomas Klammer, and Carol Lawrence

This module explains the use of target costing as a strategic profit planning and cost management tool. The module identifies the key principles of target costing, contrasts it with traditional and cost management tools, shows the critical
Steps in the process, and demonstrates its functioning in practice. The module covers:
  • A brief history and background of target costing.
  • The need for target costing.
  • The key ideas underlying target costing.
  • A description of the target costing process.
  • How to attain target costs for products.
  • How cost reduction occurs in practice.
  • The management accounting implications of target costing.
  • The technical, behavioral, and cultural implications of target costing.
Table of Contents
Strategic Implications of Target Costing
Purpose of this Module
History and Background of Target Costing
Need for Target Costing
Target Costing-Key Ideas
The Target Costing Process
Establishing Target Costs
Target Costing-An Illustration
Attaining Target Costs
     Computing the Cost Gap
     Designing Costs Out
     Release Design and Undertake Continuous Improvement
How Cost Reduction Occurs in Practice
     Design Product and Processes
     Perform Cost Analysis
     Do Value Engineering (VE)
     Estimate Achievable Cost
Management Accounting and Target Costing
     Role of Management Accountants
     Management Accounting Information
Technical Properties of Target Costing
Behavioral Issues in Target Costing
     Behaviors Needed
     Behavioral Consequences
Cultural Implications of Target Costing
     Creating a Receptive Culture for Target Costing
     Sustaining Values that Support Target Costing
Lessons Learned
Common Terms
Problems and Cases-Introductory Level
Problems and Cases-Advanced Level
     Case1: SmartCOM, Inc.
     Case 2: Modern Office Machines
     Case 3: Dragon Development

The Theory of Constraints and Throughput Accounting, Version 1.0
By Monte Swain and Jan Bell

This module describes Theory of Constraint (TOC) and demonstrates how TOC-based accounting or throughput accounting affects and is affected by traditional management accounting practices. It discusses the technical, behavioral, and cultural issues involved in merging throughput accounting with traditional accounting systems. It covers:
  • The relationship of the TOC model to an organization's strategy.
  • The basic TOC model.
  • The essentials of throughput accounting theory.
  • The interfacing of throughput accounting with traditional accounting systems.
Table of Contents
Strategic Implications of Constraints
Purpose of this Module
TOC Linkage to Product Strategy
     Production Development Cycle
     Production
The Basic TOC Model
     Solving the Hiking Dilemma
Developing the TOC Operation
     The Five-Step TOC Process
A Comparison of Throughput and Traditional Accounting Systems
     New Accounting Definitions
     A New Profit and Loss (P&L) Statement
The Mechanics of Throughput Accounting-An Illustration
     The Operation
Attributes of Throughout Accounting
     Technical Attributes
     Behavioral Attributes
     Cultural Attributes
Appendix-TOC and Linear Programming
What is Linear Programming?
     Set Up the Problem
     Solve the Problem
     Critical Limitations of Linear Programming
Problems and Cases
     Case 1: The Denver Drive Company
     Case 2: Lindo's Restaurant

The Kaleidoscopic Nature of Costs, Version 1.0
By Jan Bell and Shahid Ansari

This module introduces and illustrates cost terminology and cost classification schemes. Its primary purpose is to present the language of managerial accounting and to show that various cost classifications are essential to understanding and managing an organization's cost structure. The module covers:
  • The meaning of some basic cost terms.
  • The historical evolution of cost terms and classifications over time.
  • Cost classifications used for external financial reporting.
  • The difference between cost classifications for external and internal managerial reporting.
  • The traditional management accounting cost classifications.
  • The emergence of new cost classifications in response to the changed business and manufacturing environment.
  • The technical, behavioral, and cultural impact of cost classifications.
Table of Contents
Strategic Implications of Different Cost Views
Purpose of this Module
The Kaleidoscopic Nature of Cost
Early Cost Classifications-the External (Financial) Perspective
     Cost of Goods Sold
     Operating Costs
Traditional Management Accounting Cost Classifications
     Actual and Opportunity Costs
     Cost Behavior
     A Responsibility View of Costs
Contemporary Management Accounting Cost Classifications
     Cost Driver Analysis
     Value Chain Costing
     Activity-Based Management and Costing
     Life-Cycle Costing
     Feature and Function Costing
Evaluation of a Cost Classification Scheme
     Technical Attributes
     Behavioral Attributes
     Cultural Attributes
Lessons Learned
Appendix: Reporting Product Costs in External Income Statements
Common Terms
Problems and Cases-Introductory Level
Problems and Cases-Advanced Level
     Case 1: Plant World Inc. ©
     Case 2: Kaleidoscope Inc. ©


The Capital Budgeting Process, Version 1.0
By Thomas Klammer, Jan Bell, and Shahid Ansari

This module introduces and illustrates the fundamental
Steps in the capital budgeting process. It covers:
  • The relationship between strategy and capital budgeting.
  • The
    Steps in the capital budgeting process.
  • The importance of considering alternative opportunities when selecting capital investments.
  • How to perform cash flow analysis.
  • How to use basic financial models such as payback, net preset value, and internal rate of return to evaluate capital projects.
  • How to consider risk in selecting projects.
  • Why consideration of nonfinancial measures is critical in evaluating competing projects.
  • The importance of reviewing and learning from previous capital projects.
  • The technical, behavioral, and cultural properties of a good capital budgeting process.
Table of Contents
Capital Budgeting and the Strategic Triangle
Purpose of this Module
Strategic Context of Capital Budgeting
Steps in the Capital Budgeting Process
     Illustration of Steps in Capital Budgeting
Step 1: Translate Strategy into Capital Needs
Step 2: Generate Alternatives
Step 3: Project Financial Results
     Acquisition-Related Cash Flows
     Annual Operating Cash Flows
     Terminal Cash Flows
     Adjusting Cash Flows for Income Taxes
     Adjusting Cash Flows for Price Changes
     Cash Flow Timeline
Step 4: Perform Financial Analysis
     Discounted Cash Flow Methods
     Net Present Value Method
     Internal Rate of Return Method
     Partial Cash Flow Model-The Payback Method
     Accounting Rate of Return
Step 5: Analyze Risk
Step 6: Consider Nonfinancial Factors
Step 7: Select Projects
     Authorization to Spend
Step 8: Do Postapproval Reviews Attributes of a Good Capital Budgeting Process
     Technical Attributes
     Behavioral Attributes
     Cultural Attributes
Lessons Learned
Appendix A: Mathematics of Discounted Cash Flows
     Computing Future and Present Values of Single Sums
     Analysis of Annuities
Appendix B1: Single Sum Table
Appendix B2: Ordinary Annuity Table
Common Terms
Problems and Cases
     Case 1: Club Line

Value Chain and Strategic Cost Management
By Shahid Ansari and Jan Bell

The purpose of this module is to introduce value chain analysis as a strategic cost management tool and to introduce briefly how value chain analysis can be used as a tool for strategic positioning. The primary focus of this module, however, is cost management. After studying this module, you should understand:
  • What is value chain analysis and how it is different from traditional organization focused cost management efforts.
  • How to perform value chain analysis.
  • How value chain costing can be used to improve the strategic position of a company.
  • How value chain analysis can be used to manage costs.
  • The technical, behavioral, and cultural implications of value chain analysis as a cost management tool.
Table of Contents
Value Chain Analysis and the Strategic Triangle
Value Chain Analysis Versus Traditional Cost Management Techniques
Performing Value Chain Analysis
Performing Value Chain Analysis - An Illustration
    Step 1. Document the Industry's Value Chain
    Step 2. Understand the Cost and the Profit Margins at Each Step of the Value Chain
    Step 3. Map the Focal Organization's Internal Value Chain
    Step 4. Map the Focal Organization's Cost Structure Relative to the Value Chain
Using Results of Value Chain Analysis
    Stay Out of "No-Profit Zones"
    Consider Opportunities for Integration
    Align Spending with Value Creation
    Reconfigure the Value Chain
    Involve Value Chain Partners to Improve Performance
Evaluation of Value Chain Costing
Technical Attributes
Behavioral Attributes
Cultural Attributes
Lessons Learned
Problems and Cases-Introductory Level
Problems and Cases-Advanced Level
Case 1: The Daily Breeze
Case 2: Dell Computer Corporation


Standard Costing as a Cost Management Tool
By Shahid Ansari, Jan Bell, and Thomas Klammer
This module focuses primarily on the value and limitations of standard costing systems (SCS) for cost management. It illustrates the fundamental process of setting standards, measuring variances, and evaluating differences between actual and expected results. After studying this module, you should be able to:
  • Understand the difference between cost maintenance and cost reduction systems.
  • Identify when to use standard costing.
  • Apply the five steps in using standard costing to manage costs. These steps include:
    • Developing standards
    • Collecting actual cost data
    • Computing variances
    • Investigating variances
    • Taking corrective action
  • Appreciate the behavioral and cultural attributes of a good standard costing system.
Table of Contents
Strategic Value of Standard Costing
Cost Reduction Versus Cost Maintenance Systems
When to Use Standard Costing
    SCS and Product Costing
Standard Costing Steps
Step 1. Develop standards
Step 2. Accumulate actual information
Step 3. Compute variances
Step 4. Investigate variances
Step 5. Take corrective action
Behavioral and Cultural Aspects of SCS
    Behavioral Impact of SCS
Cultural Attributes
Lessons Learned
Appendix A-Mix and Yield Variances
Labor Quantity Variance
Mix Variance
Yield Variance
Problems and Cases-Introductory Level
Problems and Cases-Advanced Level
Mini Case 1: Cold Foods, Inc.
Mini Case 2: Snap Together Manufacturing
Mini Case 3: Automotive Support Company


Cost Volume Profit Analysis
By Shahid Ansari, Jan Bell, and Thomas Klammer

This module introduces the cost-volume-profit (CVP) model as an important managerial tool for making best short-term use of an organization's productive capacity. It demonstrates how the CVP model can answer a variety of questions about costs, prices, and profits. After studying this module you should understand:
  • The assumptions underlying the CVP model.
  • The relationships of the variables in the basic CVP model.
  • How to use the CVP model to analyze changes in costs, prices, and volume and their effect on profits in single-product situations.
  • How to use the CVP model to analyze changes in costs, prices, mix, and volume and their effect on profits in multiple-product situations.
  • When and where to use the CVP model.
  • The limitations of the CVP model.
  • Understand how and why managers often misuse the CVP model.
  • How to use the model when there is uncertainty about prices and other variables.
  • The behavioral and cultural impacts of the CVP model.
Table of Contents
Cost Volume Profit Analysis (CVP) and the Strategic Triangle
Purpose of this Module
Key Assumptions of the CVP Model
    Production Quantity (Volume) Drive Cost Behavior
    Production Equals Sales
    All Costs are Fixed or Variable
    Cost and Revenue Behavior is Linear
    Relevant Range
    Sales' Mix is Constant
The Basic CVP Model
    Profit Volume Chart
Using the Single-Product CVP Model
    Breakeven Point and Safety Margin
    Desired Profit Before Tax
    Desired After Tax Profit
    Effect of Change in Fixed Costs
    Designing Cost Structure
    Establishing Expected Selling Prices
    Comparing Prices
CVP Analysis-Multi-product Situations
    The Product Mix Decision
When to Use CVP Analysis
    New Product Addition-Separable Costs
Limitations of the CVP Model
CVP and ABC
Misuse of the CVP Model
    Making Marginal Pricing Decisions
    Adding a Product
Using CVP Under Uncertainty
Behavioral and Cultural Attributes of CVP
    Behavioral Attributes of the CVP Model
    Cultural Attributes of the CVP Model
Lesson Learned
Problems and Cases - Introductory Level
Problems and Cases - Advanced Level
Case 1: WIC International
Case 2: City Symphony Orchestra

Customer Profitability Analysis
By Shahid Ansari, Carol Lawrence, and Ella Mae Matsumura
The purpose of this module is to discuss the importance of customer profitability analysis as a strategic marketing and cost management tool. When you are finished with this module, you will:
  • Understand the strategic importance of customer profitability analysis.
  • Know the reasons behind the increased interest in customer profitability.
  • Understand how traditional cost systems distort customer profitability through improper cost allocations or confuse customer profitability with product or order size profitability.
  • Learn how to perform customer profitability analysis using an activity-based costing approach.
  • Understand how to use customer profitability analysis to make intelligent marketing and customer service decisions.
  • Understand the technical, behavioral, and cultural attributes of customer profitability analysis.
Table of Contents
Strategic Importance of Customer Profitability Analysis
Rise of Customer Profitability Analysis
Traditional Accounting Systems and CP Analysis
The Structure of CP Analysis
    Analyzing Order Size Profitability
Customer Profitability Analysis - An Illustration
    Step 1. Create Customer Profiles
    Step 2. Compute Customer Revenue
    Step 3. Computer Costs to Serve Customers
    Step 4. Compute Customer Profitability
    Step 5. Use CP analysis results to design customer mix and strategy
Attributes of a Good Customer Profitability System
    Technical Attributes of CP Analysis
    Behavioral Attributes
    Cultural Attributes
Lessons Learned
Problems and Cases - Introductory Level
Problems and Cases - Advanced Level
Case 1: Krypton Chemicals-Case A
Case 2: Krypton Chemicals-Case B


Business Process Reengineering
By Richard J. Palmer and Shahid L. Ansari
The purpose of this module is to explain the concepts and practices associated with Business Process Reengineering. When you complete this module, you should understand:
  • The difference between a process and a function.
  • The nature of BPR and its underlying assumptions.
  • Differences between BPR and Activity-Based Management (ABM).
  • The steps in performing a BPR project.
  • Performing BPR: an illustration.
  • The technical, behavioral, and cultural attributes of BPR.
Table of Contents
Strategic Importance of Good Processes
Process Versus Function
The Nature and Assumptions of BPR
Differences Between BPR, ABM, and TOC
Steps in Performing a BPR-An Illustration
Description of Megawerks, Inc.
Step 1. Understand and Document the Existing Process
Step 2. Determine whether the Process is Broken
Step 3. Prioritize Processes for Reengineering
Step 4. Generate Ideas for Process Redesign
Step 5. Select Ideas and Create a New Process Design
Step 6. Implement the New Process Design
BPR Behavioral and Cultural Issues
    Behavioral Issues
    Cultural Attributes
Lessons Learned
Appendix A-Megawerks, Inc. Sample Travel Expense Report
Problems and Cases-Introductory Level
Problems and Cases-Advanced Level
Case 1: Wrinkle Corporation
Case 2: ITT Automotive North America


Cost Estimation
By Shahid Ansari, Jan Bell, and Thomas Klammer

The purpose of this module is to introduce and illustrate methods of cost estimation. After studying this module, you should be able to:
  • The difference between a process and a function.
  • Appreciate the typical reasons organizations estimate costs
  • Understand the various steps in cost estimation
  • Apply regression analysis for estimating costs for mature products and processes
  • Apply engineering and parametric methods for estimating costs for new products and processes
  • Deal with incomplete information when estimating costs
  • Select the right cost estimation method to use in different situations
  • Understand the behavioral and ethical issues related to cost estimation
Table of Contents
Cost Estimation and the Strategic Triangle
Purpose of the Module
Typical Reasons for Cost Estimation
Steps in Cost Estimation
    Step 1. Define the Independent Variable
    Step 2. Select an Independent Variable
    Step 3. Choose a Cost Estimation Method
    Step 4. Apply the Selected Method
Cost Estimation for Mature Processes
    Account Analysis Method
    Statistical Methods-Simple Linear Regression
    Steps in Regression Analysis
    Statistical Methods-Multiple Regression Analysis
    Using Regression Analysis-Some Cautions
Cost Estimation for New Products or Processes
    Engineering Analysis
    Physical (Parametric) Analysis
    Cost Tables and Databases
Making Quick Cost Estimates
    High-Low Method
Behavioral and Ethical Issues
Behavioral Consequences
Ethical Issues
Lessons Learned
Appendix A: Non-linear Regression-Learning Curves
Learning Curves Illustrated
Estimating Learning Rates in Practice
Problems and Cases-Introductory Level
Problems and Cases-Advanced Level



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