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Journal of Management 1992, Volume 4 Contents
Integrated Performance Measurement: Management Accounting to Support the New Manufacturing Realities Alfred J. Nanni, Jr. J. Robb Dixon Thomas E. Vollmann Abstract: Management accounting has begun to evolve beyond historical cost data and reports designed to control results against financial plans. The competitive environment requires plans that continuously unfold as new knowledge emerges. Relationships between costs and activities change as the organization learns to work smarter. Some organizations have responded by moving to strategically-driven performance management systems that integrate actions across functional boundaries and focus on strategic results. This is called integrated performance measurement in this paper. Integrated performance measurement is not based on a general set of uniform measures but is a process for developing and deploying performance direction. This paper introduces the concepts of integrated performance measurement using illustrations from companies we have observed. It also contrasts the product-oriented methods of traditional management accounting to the service-oriented approach of integrated performance measurement. Some implications for the scope and direction of future research are offered. Back to TopA Case Study on the Impact of Material Yield Related Cost Drivers on Economic Improvement Thomas L. Albright James M. Reeve Abstract: This paper reports the results of a case study which was undertaken to understand the sources and costs of process variation at a manufacturing facility of a major paper producer. Sources of process variation that were thought to be cost drivers by managers (based on interviews) were empirically evaluated using an Analysis of Variance (ANOVA) model. This study finds that a) crews, b) shifts, c) product grades, d) rest interval between shifts, e) grade changes, f) machine downtime, g) changes in shift, and h) various interaction effects all are significant sources of variation in product quality. From these variables, this study develops a heuristic to improve the manufacturing process with regard to product quality. Back to TopThe Marginal Approach to Joint Cost Allocation: A Model for Practical Application C.S. Agnes Cheng Rene P. Manes Abstract: This paper illustrates a marginal approach for allocating joint costs in the context of a practical budget planning process. Contrary to the marginal approach based on nonlinear programming, the only demand data requirement of this version of the marginal approach is a set of budgeted sales quantities. Unlike the traditional sales value and physical unit joint cost allocation methods, which only generate joint cost allocations, this approach simultaneously provides 1) guidelines to production and marketing decision makers and 2) cost allocations to accountant. The purpose of this paper is to introduce accounting educators and practitioners to an approach which is conceptually sound an easily understood and applied in the real world. To achieve this purpose, the paper first describes the origins and usefulness of the marginal approach in general and follows with a simple graphical illustration of a budget planning model. Then the implications of this approach for income reporting and the evaluation of by-products are discussed. Finally some of the problems of implementation are considered. Back to TopManagement Control Systems for Quality: An Empirical Comparison of the U.S. and Japanese Electronics Industries Shirley J. Daniel Wolf D. Reitsperger Abstract: Recent attention has focused on how management control systems can be used to support quality improvements in manufacturing. This study analyzes the type and frequency of production and quality internal failure goals and feedback information provided to 1468 operating managers in 64 U.S. and 50 Japanese electronics firms. Significantly more Japanese than U.S. managers regularly receive production and internal failure goals, indicating that Japanese manufactures have modified their management control systems to focus employees on production and quality improvements. With respect to quality feedback, U.S. control systems are more comparable to those in Japan. Research has shown, however, that feedback without goal-setting does not result in significant performance improvement. The lack of specific goal-setting for internal failure measures in the U.S. suggests that U.S. firms may encounter difficulty in implementing quality improvement programs because complementary management control systems are not in place to delineate expectations and encourage improvement. Back to TopProfit-Linked Productivity Measurement Don R. Hansen Maryanne M. Mowen Lawrence H. Hammer Abstract: In this paper, economic productivity theory is used to develop a new profit-linked productivity measure (the PLM). The PLM model is easily operationalized by the firm; it does not require a knowledge of the firm's production function and can be computed using existing accounting data. Furthermore, the model links with both operational and partial productivity measures. The PLM is shown to have certain advantages over three previously developed profit-linked measures: the APC measure [Belcher, 1984]; the PPP measure [Miller, 1984]; and the BDK measure [Banker et al.,1989]. Back to TopManagement Control of a Foreign Sales Corporation: Some Special Considerations Fred A. Jacobs Ernest R. Larkins Abstract: The purpose of this paper is to provide information useful in the management control of certain segments of multinational firms. The Foreign Sales Corporation (FSC) is used throughout the paper to demonstrate that management control and the management control system are substantially influenced by the initial strategic decision to operate as an FSC in the first place. Thus, to achieve the goals inherent in the FSC choice, many dimensions of management control and systems design are not discretionary. Multinational firms often choose to operate in certain markets because of cash flow considerations that are the direct result of the favorable tax treatment allowed by a tax treaty or the Internal Revenue Code. The FSC form is only one of several opportunities available for the maximization of cash flow via tax minimization. Its use in this paper allows the authors to show how the influence of the initial choice pervades all aspects of management control and control systems. Items such as transfer pricing policies cease to be discretionary and become subject to the various statutes and regulations that govern. Back to TopAn Examination of the Association Between Organizational Design Factors and the Use of Accounting Information for Managerial Performance Evaluation Steven E. Kaplan James T. Mackey Abstract: Responsibility accounting is an important use of accounting information. However, concerns have been expressed about using accounting information to evaluate managerial performance. Based on contingency theory, we contend that the use of accounting information for evaluative purposes is related to organizational design. A survey of plant managers and plant controllers of medium sized manufacturing companies was conducted. The purpose of the questionnaire was to collect evidence on the association between the use of accounting information for managerial evaluation and three organizational design factors, as follows: 1) the type of production process (e.g., a job shop versus a flow shop), 2) the frequency that work-in-process inventory was maintained, and 3) the type of accounting procedures for set-up costs. The results of probit regression found a significant (p < 0.05) effect for the production process variable. The other two variables were marginally significant (p < .10). Overall, the results suggest that the costs and benefits attributable to using accounting information for evaluative purposes are associated with organizational design factors. Back to TopA Study of the Post-Completion Audit Practices of Large American Corporations: Experience From 1978 and 1988 Bethane Jo Pierce Jeffery J. Tsay Abstract: This paper reports the results of surveys conducted in 1978 and 1988 regarding the post-completion audit practices of Fortune 500 corporations. Questionnaires were mailed in each of those years to random samples of 200 Fortune 500 corporations. Analyses of the usable responses indicate that the degree of usage of the post-completion audit was lower than its perceived importance. None of the problems with post-completion audits identified in the literature were perceived to be more important than any others. "Gaining experience for future proposals" was cited as the most important reason for implementing the post-completion audit program. Factors such as company size and capital intensity of the company were not positively correlated with the percentage of projects audited but project investment size was. The most frequently used audit techniques in 1978 were profit or loss and cash flow of the project; but in 1988, the most frequently used techniques were the internal rate of return and cash flow of the project. With rare exceptions, responses in 1988 were very similar to those in 1978. Back to TopA Heuristic for Determining Budget-Based Contracts in Multi-Period Settings Douglas A. Schroeder Abstract: This paper analyzes the principal's choice of budget-based contracts in a multi-period setting. In particular, two budget-based contracts are considered in which performance standards are used to evaluate the cost performance of managers who are rewarded by predetermined bonus amounts: (1) a "bang-bang" contract and (2) a conditional investigation contract. Agent preferences are assumed to be stochastic and time dependent to more faithfully capture multi-period agency conflicts. A simple, decision heuristic for the principal's choice of budget-based contracts in a multi-period setting is developed. The heuristic involves treating the agent's behavior as a stochastic variable that is related to the performance standard and minimizing the principal's expected long-run costs using a simple "steady-state" Markovian solution. Numerical analyses suggest that the heuristic makes "reasonably" efficient trade-offs between budget-based contract parameters (bonus amounts and performance standards) relative to an optimal benchmark for the cost processes examined. Back to TopStrategic Cost Management: The Value Chain Perspective John K. Shank Vijay Govindarajan Abstract: The value chain concept has been discussed in the strategy literature for more than a decade now. As a generic concept for organizing our thinking about strategic positioning, its significance is widely accepted. But empirical examples of the power of the concept for shaping cost analysis have not yet reached the literature. This paper reports a disguised field study in which a value chain is constructed. The insights for cost management which emerge are contrasted with those which are suggested by two traditional analysis techniques-a 2x2 growth/share matrix and conventional cost analysis. The purpose of the paper is to extend out knowledge about how to construct and use value chains in managerial accounting. The authors believe the concept is powerful and deserves far more empirical study as a way to make the strategic perspective more explicit in managerial cost analysis. Back to TopThe Hidden Costs of Specialty Products Bin Srinidhi Abstract: Traditional product costing systems have become increasingly irrelevant in the present day multi-product manufacturing environment with processing facilities which incur a much larger proportion of their costs in overheads than in direct labor. For example, specialty products which may have similar direct labor requirements as standard products but impose more overheads will bear less cost than they impose given the application of overheads based on direct labor. It has been suggested in the recent literature that activity costing systems which trace overhead costs to different activities and then apply costs to products based on the demands made by that product line on these activity centers correct this problem. Activity costing requires overhead costs to be traced to these activities. However, there are some costs such as the cost of delay in common processing centers and the holding cost of work in process inventory which are difficult to trace to activity centers. In addition, specialty products impose such costs on other products and therefore, in the application process, these externality costs have to be traced back to the former. This paper suggests an extension of the current activity costing framework and uses results from queuing theory to incorporate these costs. It also illustrates the application with a numerical example and a real life case study. Back to TopA Review and Extension of Using Performance Reports: A Field Study Based on Path-Goal Theory Leslie W. Weisenfeld Larry N. Killough Abstract: The purpose of this study was to clarify the conflicting findings from earlier research regarding the impact of evaluating performance with accounting data. This study developed a research model from prior research findings. From the model several relationships were identified for examination. The results of this examination indicate that the use of accounting data for evaluation purposes may result in functional behavior if (1) congruency exists regarding the evaluation method, (2) the method is perceived to be appropriate and fair, (3) reward is contingent upon variances, (4) goals are clear, (5) the task being measured is relatively predictable, and (6) the individual perceives a positive path with respect to the performance report. Back to Top |