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Journal of Management
Accounting Research
1994, Volume 3
Contents
Economic Effects of Production Changes: Accounting Implications
Nicholas Dopuch
Washington University
Mahendra Gupta
Washington University
Abstract: Changes in production processes, such as production and engineering order changes, can potentially affect both direct and indirect manufacturing costs. Research to date, however, has focused primarily on how changes in production processes affect the level of manufacturing overhead costs while assuming such changes do not affect direct unit-level costs. In this paper, we present results from a field study on the effects of production changes on direct labor productivity and direct material yields. Our analyses show that production changes reduce direct labor productivity and material yields raising costs beyond the labor and material costs incurred in setups associated with these changes. We also illustrate how change-adjusted labor and material standards may be used in variance analysis to separate the effects of production changes on the usage and costs of direct inputs from those effects associated with more common effects on operating efficiency. Our results suggest there could be significant benefits from re-examining existing manufacturing and marketing policies that increase the frequency of changes in production processes.
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The Accountability Demand for Information
John H. Evans III
Vicky B. Heiman-Hoffman
Stephen E. Rau
All at the University of Pittsburgh
Abstract: Previous analyses of the demand for accounting information include a decision facilitating and decision influencing demand. This paper investigates whether, in addition to these two demands, there is an additional accountability demand for information. An experiment was conducted with owner-subjects and manager-subjects to determine which of two internal control systems the owner-subjects would choose. The two systems differed both in their cash payoffs to the owners and in the degree to which they held the mangers accountable. The results were consistent with the hypothesis that many individuals value accountability beyond what it may contribute to their wealth, and suggest that the standard decision facilitating and decision influencing roles of accounting information in economic models may not be sufficient to describe actual behavior in certain contexts.
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Marketing, Cost Management, and Management Accounting
George Foster
Stanford University
Mahendra Gupta
Washington University
Abstract: Marketing costs represent a significantly large component of the cost structure in many industries. Relative to research on manufacturing costs, however, marketing costs have received very little attention in the accounting literature. In the marketing literature, analyses of marketing function have primarily focused on the effects of marketing functions on sales volume and revenues. In this paper, we highlight a need for understanding the nature of marketing costs and for developing measures that can evaluate both the efficiency and cost effectiveness of marketing functions. We provide a discussion that links marketing with cost management/management accounting using: (a) a review of the intersection between the marketing and accounting literatures, (b) field interviews with marketing executives, and (c) results from a questionnaire survey of marketing executives. Significant gaps are perceived to exist between the usefulness of information available from existing accounting systems and the potential value of accounting information in marketing decisions. Eight areas of future research on the interface between marketing and accounting are discussed.
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Intra-Firm Pricing: Experimental Evaluation of Alternative Mechanisms
Dipankar Ghosh
The University of Oklahoma
Abstract: This research explores the economic and behavioral effects of transfer pricing in an experimental setting. Two different transfer pricing mechanisms are examined: a direct approach where the transfer price and quantity was negotiated between the divisional managers, and an indirect approach in which the divisions communicated their private information to the central headquarters which determined the transfer price and quantity. The objectives were to evaluate the two mechanisms with respect to their effects on firm profit, and the level of conflict between the two divisional managers.
A total of 82 subjects, forming 41 dyads, participated in the experiment. The task for a subject was to role play as the manager of either the selling division or the buying division and to determine the number of motors to be transferred or acquired and the corresponding price using one of the two mechanisms. The results indicate a significant difference in firm profit depending on the mechanism used to determine the transfer price, with the direct mechanism achieving higher firm profit than the indirect mechanism. The results also demonstrate that inter-divisional conflict is significantly less under the direct approach than it is under the indirect approach.
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The Impact of Control Policies on the Process and Outcomes of Negotiated Transfer Pricing
Penelope Sue Greenberg
Temple University
Ralph H. Greenberg
Temple University
Sakthi Mahenthiran
Pennsylvania State University at Erie
Abstract: This study provides laboratory evidence concerning the effects of incentives and arbitration on the process and outcomes of negotiated transfer pricing. Two experiments were performed, one with high interdependence between the trading divisions, and the second with low interdependence. The results indicate that under high interdependence using either a firm-based incentive scheme or arbitration was superior to using both. Under low interdependence, using both led to a superior negotiating process, but the interactions were insignificant for the negotiation outcomes.
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Distorted Medicare Reimbursements: The Effects of Cost Accounting Choices
Yuhchang Hwang
University of Pittsburgh
Alison J. Kirby
Boston University
Abstract: In this paper we demonstrate the potential reimbursement distortion from using a single cost driver for allocating hospital inpatient care costs to patients. Given that payments for hospital inpatient care are closely related to hospitals' reported costs, if hospitals' inpatient care costs are driven by multiple drivers but are allocated and reported based on only a single cost driver, it is likely that the reported cost and consequently the level of reimbursement by individual insurers to hospitals will be distorted. Our analysis provides an estimate of the extent to which Medicare's current costing procedures generate inequities in absolute and relative levels of reimbursement. Because of the large absolute level of health care expenditures, even small percentage changes may produce significant economic consequences.
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Budgets as a Credible Threat: An Experimental Study of Cheap Talk and Forward Induction
Steven J. Kachelmeier
University of Texas at Austin
J. Reed Smith
University of Texas at Austin
William F. Yancey
Texas Christian University
Abstract: This research examines the ex ante role of budgeting as a strategic deterrent to dissuade divisions from proposing projects that are unfavorable to the firm as a whole. We conduct a laboratory experiment (120 subjects) with monetary incentives to examine the strategic interactions between a firm and a decentralized division. Factors in the 2 x 3 design are (1) the presence or absence of a budgetary communication channel from the firm to the division (two levels), and (2) the degree of information asymmetry (three levels). Results indicate an inverted U-shaped relationship between the degree of information asymmetry and the effectiveness of budgetary communication. Specifically, budgetary communication does not significantly affect behavior when the firm has no signal or a perfect signal of the division's information. In the more realistic case of uncertain information, however, the presence of budgetary communication significantly reduces the propensity of divisions to propose projects that would be unfavorable to the firm.
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Managing Innovation Costs: A Study of Cost Conscious Behavior by R&D Professionals
Michael D. Shields
The University of Memphis
S. Mark Young
University of Southern California
Abstract: Using interviews with R&D professionals in five R&D-intensive firms, and the literature on the management of innovation, we developed a survey instrument to study the determinants of cost consciousness. The survey was administered to professionals working in the R&D labs of four large chemical firms. Results indicated that cost budget participation and cost knowledge are key determinants of cost consciousness among R&D professionals.
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