Chapter 11 – Decision Making with a Strategic Emphasis
Teaching Notes for Readings
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Chapter 11 – Decision Making with a Strategic Emphasis
Reading 11-1: “Relevance Added: Combining ABC with German Cost
Accounting”
This article describes ABC costing and German cost accounting (GPK) and provides a comparison of the
two methods. GPK is presented as a superior method for relevant cost analysis.
Discussion Questions:
1. What is GPK?
GPK is the acronym for German cost accounting, which is an enterprise system-based cost accounting
variable costing.
2. How does GPK compare to ABC costing?
Since it is based on variable costing, GPK it is considered useful for relevant cost decisions such as
those encountered in chapter 9: the special order decision, make or buy, profitability analysis, and the
3. What are the key elements of GPK?
4. What are the two types of cost centers used in GPK? Explain the difference.
There are two types of cost centers, the primary cost centers and the final cost centers. Primary costs
Chapter 11 – Decision Making with a Strategic Emphasis
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Chapter 11 – Decision Making with a Strategic Emphasis
Reading 11-2: Analyzing Sustainability Impacts
To bypass traditional “triple-bottom-line” thinking, the authors offer a practical tool that can determine
the real costs and benefits of going green. This cost-benefit tool allows financial managers to consider
both the financial and social outcomes of potential decisions without the need for advanced knowledge of
sustainability models or methods. The process requires five basic steps. This article provides a practical
tool that can be used to determine the real costs and benefits of” going green.”
Discussion Questions
1. What is the principal link between this article and the material discussed in Chapter 11 of the
text? What motivation is offered by the authors to expand the basic decision model presented in
Chapter 11?
latter of which may be difficult to estimate in practice. The basic motivation for the recommendation
by the authors to expand the decision-making model is stakeholder demands: increasingly, regulators,
customers, potential customers, investors, and legislators are requiring more accountability as regards
environmental and social impacts of business.
2. In the opinion of the authors of this article, what are “sustainability outcomes” a function of?
The article defines “sustainability” outcomes as the sum of sustainability performance (i.e.,
environmental and/or social impacts of decision making) and stakeholder reactions (media reports,
public opinion, legislative attention, etc.). Given this definition, one could revisit question 1 above and
3. Provide an overview of the five-stage decision process recommended by the authors as a way to
incorporate sustainability outcomes into traditional decision-making models.
The authors suggest the following five-step decision process as a structured way to incorporate
sustainability outcomes in decision analysis:
1. Traditional (Cost-Benefit) Analysis
4. Provide an overview of the CityClean, Inc. example offered by the authors.
The hypothetical example provided by the authors involves a business, CityClean, Inc., that provides
various cleaning services to area businesses/local government and that is considering a move to more
environmentally friendly cleaning supplies. An expanded cost-benefit analysis of this decision (to
include sustainability performance) is presented in Figure 3 of the article. The net monetary annual
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Chapter 11 – Decision Making with a Strategic Emphasis
Figure 3 includes a “Stakeholder Reaction” box. In the latter case, the management accountant
working with management places an estimated monetary value on each of the “stakeholder reactions”
listed in the “Stakeholder Reaction” box. These could include both revenue enhancements as well as
cost savings. The overall point is that the fuller cost-benefit analysis reflected in Figure 3 provides a
different “signal” to management regarding the desirability of the proposed investment.
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Chapter 11 – Decision Making with a Strategic Emphasis
Reading 11-3: A New Hue of Green for the Management Accountant
With energy prices at historically high levels, there’s ample incentive for companies to consider investing
in energy-saving technology that’s both cost efficient and environmentally friendly. Management
accountants can help the cause by preparing cost-benefit analyses of alternative investment possibilities
that contribute to the further “greening” of the United States. This creates a win-win situation for all.
Discussion Questions
1. Provide an overview of the context for the decision problem explored in this article.
annual energy usage by 25%, the resort consumes about 7.5 million kilowatt hours of electricity per
year—or about what a small town might consume. Of this, roughly 60% is used during the winter
months. Rising winter energy costs spurred the resort to start thinking of new ways to lower its bills.
As a way of “going green” and simultaneously managing its energy costs, the company recently
invested in a wind-turbine project, an analysis of which is the primary subject of the article.
2. What were the major financial costs and benefits associated with the investment in the wind
turbine by Jiminy Peak Mountain Resort?
Excess energy generated by the wind turbine—obviously, this cannot be “stored,” but it could be
automatically diverted to the power grid and sold to the regional electric utility company (~
$160,000/year)
Sales of renewable energy credits (RECs) to third parties (original agreement was a three-year
commitment for a total of $500,000; this was later extended by Massachusetts Technology
3. What were some of the major non-financial (i.e., qualitative or strategic) factors associated with
the investment by Jiminy Peak Mountain Resort?
4. According to the authors, what are the primary roles that the management accountant can play
in terms of investment decisions similar to the one described in this article?
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Chapter 11 – Decision Making with a Strategic Emphasis
As indicated in Chapter 11, the management accountant’s primary role is to help generate the set of
relevant information related to proposed spending and investments on the part of management. These
described in the article.
In addition, the management accountant can help design an effective feedback/control system
regarding such investments. This system might consist of two primary components:
1. Post-Investment Audit (see Chapter 12): the general idea here is to provide a check on the
reasonableness of the assumptions that were used to make the investment decision, with the
estimates.
2. Periodic Budgetary Reports (see Table 2 in the article). Note that the reporting framework
reflected in Table 2 includes a combination of financial, nonfinancial, environmental, and
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