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Chapter 1 - Cost Management and Strategy
1-16
1-27 (continued -1)
4. Business intelligence (BI) is becoming a critical management tool
for many companies, so a variety of industries and companies could
be chosen. Some examples provided in Chapter 8 include
EHarmony and Gallo. BI allows these companies to become more
qualified candidates and to better prepare their students for work after
graduation.
Source: Melissa Korn and Shana Tibken, “Schools Plan Leap Into
Data,” The Wall Street Journal, August 4, 2011 p B12.
1-28 Balanced Scorecard (15 min)
1. The balanced scorecard can help a firm by explicitly drawing
managers’ attention to critical success factors in four key areas:
customer satisfaction, financial performance, internal business
processes, and innovation and learning (human resources). The
Chapter 1 - Cost Management and Strategy
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2. The Balanced Scorecard: Some example factors that might be
included in JIC’s Balanced Scorecard are as follows:
a. customer satisfaction
quality
on-time delivery
b. financial performance
earnings
earnings per share
cash flow
unit cost, trend in costs
c. internal processes
cycle time
inventory levels: finished goods, work in process, and
Chapter 1 - Cost Management and Strategy
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1-28 (continued -1)
number of engineering improvements
d. learning and growth (human resources)
turnover
training hours
number of accidents
1-19
1-29 Banking; Strategy; Skills (20 min)
The purpose of this exercise, and 1-30 which is an alternate, is to
have the student consider the role of the cost management
professional in an actual company. What are the job skills required to
be an effective employee, and thereby, help the company to be
successful?
1. There are a number of possible answers here. Here are some
ideas:
Customer satisfaction
Customer retention
Number of ATMs
The bank remains competitive and successful by attending to these
critical success factors.
2. Again, there are a variety of ways the materials might be
developed. The key idea is that the recruiting materials and the job
description should follow from the critical success factors noted
above. Here is an example:
Business Knowledge/Understanding strategy
Has a good understanding of business fundamentals;
Creative Problem Solving
Thinks creatively
Understand complexities
Chapter 1 - Cost Management and Strategy
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1-29 (continued -1)
Persuasive
Is able to present ideas concisely and clearly
Understands who “owns” a problem, and who can solve it
Flexibility
Not easily disappointed; handles conflict well
Is able to see multiple viewpoints while asserting a
position
Is able to delegate, and teaches others how to do the
same
Looks for new ideas and rewards suggestions
Builds commitment
Performance
Shows enthusiasm
Has high standards
Willing to work extra hours when necessary
Develops new skills where appropriate
Professional Ethics
Displays high standard for ethical behavior
Chapter 1 - Cost Management and Strategy
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1-30 Consulting; Skills (20 min)
This exercise can be used as an alternative to 1-29. Generally,
the personal attributes will be the same as for banking. What skill
areas might be especially important in consulting? Perhaps creativity
and problem solving, the ability to follow a logical thought process, to
develop and analyze alternatives.
Chapter 1 - Cost Management and Strategy
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1-31 Activity Analysis in a Bank (20 min)
1. Activity analysis is used to identify a detailed description of the
specific activities performed in the operations of the bank. The
activity analysis is used in two ways: activity-based costing and
activity-based management. Activity-based costing (ABC) could be
analysis to improve operational control and management control.
2. Example activities might be:
process deposits
process withdrawals
answer customer inquiries
sell travelers checks
process a mortgage loan application
mail out monthly statements: checking customers, savings
customers, loan customers
The activity analysis for processing deposits, for example, would
include a detailed description of the number of different ways the
Chapter 1 - Cost Management and Strategy
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1-32 Professional Organizations and Certifications (15 min)
Ian should consider joining one or more professional
organizations. This would be helpful for developing relationships with
other cost management professionals. Relationships of this type, and
the continuing professional education programs of these
organizations, offer an excellent way to develop professional skills
as a Certified Public Accountant (CPA), as it is widely recognized not
only within management accounting, but also in public accounting
and financial management.
Chapter 1 - Cost Management and Strategy
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1-33 Ethics, Product Quality (15 min)
Some will recognize this as similar to the case of the Intel
Pentium chip reported in the news in the mid 1990s. Even if the fault
will occur in very rare and unusual circumstances, if the consequence
could be some damage to a user, the firm should advise users of the
Chapter 1 - Cost Management and Strategy
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PROBLEMS
1-34 Strategy; Calvin Klein (20 min)
Calvin Klein products are clearly differentiated on the basis of high
fashion and cost. What remains at issue is whether some
differentiated products can be sold in discount retail stores. Thinking
See: Ellen Byron: “101 Brands, 1 manufacturer,” The Wall Street
Journal, May 9, 2007, p B1
Note: Calvin Klein products are also made by Kellwood Corp of St.
Louis, Missouri.
Chapter 1 - Cost Management and Strategy
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1-35 Current Economic Information; Use of the Internet (30 min)
Information obtained from the Federal Reserve Board site, in July 2011:
http://www.federalreserve.gov/apps/fof/FOFTables.aspx
Gross Domestic Product (Table F6)
Gross domestic product remained relatively flat from the period 2007 to
2010, rising slightly from $14,061 billion in 2007 to $14,369 billion in 2008
then falling to $14,119 in 2009 and rising again to $14,660 in 2010. While
economists have said the Great Recession ended in June 2009, there has
not been much improvement since that time. Overall this is a sign of a
very slow economic recovery. Looking to components of GDP, in line 7,
Home Mortgages (Table F218)
On almost every dimension, home mortgage assets fell from 2007 to 2010.
All sectors were down $107 billion in 2008 and another $208 billion in 2009
Overall, these figures reflect an economy very slowly recovering from
recession at the time the data was obtained.
1-27
1-35 (continued -1)
The severe recession that began in December 2007 and ended in
December 2009 has left a period of high unemployment, a depressed
core business strategy of low prices. Here are some other examples:
In the apparel industry
Abercrombie & Fitch has adopted the strategy of maintaining prices,
and accepting lower sales in order to protect its reputation and
differentiation. In contrast Saks has drastically lowered its prices to
maintain sales volume. Fashion designers who supply these retailers are
also responding, some with an attempt to provide simultaneously
innovative design and great value.
Source: Christina Binkley, “Lean Times Beget Fresh Fashion Ideas,” The
Wall Street Journal, February 18, 2009, p D1; Nicholas Casey,
“Abercrombie Fights Discount Tide,” The Wall Street Journal, December 8,
2008, p B1.
In the food industry
McDonald’s, together with Wal-Mart, was the only firm in the DJIA
average to experience stock appreciation in the latter part of 2008.
McDonald’s is doing well in the lean economic times. Other firms have
Hershey products.
Source: Julie Jargon and Anjali Cordeiro, “Recession Puts Hershey in
Sweet Spot,” The Wall Street Journal, January 28, 2009, p B1.
Chapter 1 - Cost Management and Strategy
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1-36 Strategy; Innovation (15 min)
1. The rate of innovation is higher in software and services,
semiconductors, drugs, biotech, and technology hardware because the
firms in these industries compete largely on innovation. For example, a
2. Somewhat lower levels of innovation are seen in the food and beverage,
consumer goods, and household products, because a larger portion of
these products and firms compete on cost leadership. These are the
conscious retailers.
Source: Peter Coy, “The Search for Tomorrow,” Business Week, October
11, 2004, pp 216-220.
A more recent follow-up to Peter Coy’s study is the survey done by
Business Week and the Boston Consulting Group. The survey of 1,000
senior managers validated the earlier study: software and technology
companies such as IBM, Samsung and Apple were most highly ranked.
Source: Jena McGregor, Michael Arndt, Robert Berner, Ian Rowley, Kenji
Hall, Gail Edmonduson, Steve Hamm, Moon Ihlwan, and Andy Reinhardt,
“The World’s Most Innovative Companies,” Business Week, April 24, 2006.
For a current update on innovation in business see the Bloomberg
Businessweek site, http://www.businessweek.com/innovation/.
1-29
1-37 Strategy; Commodity Business (15 min)
SanDisk is apparently trying to move from a cost leadership strategy that
fits well the commodity business to a differentiated strategy. This approach
has been successful for other tech firms, such as Intel, which has
established itself as a differentiated brand in a commodity market. The
Chapter 1 - Cost Management and Strategy
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1-38 Enterprise Risk Management (20 min)
The risk factors in the UHG (United Health Group) ERM appear to be
relatively comprehensive. A manufacturer will have different risk factors
than a service firm such as UHG, so the ERM of the auto parts
manufacturer would recognize these differences. For example, while the
auto manufacturer will likely have a risk category for the external
environment, under this category it would have a risk factor of, for
example, trend in input prices or in auto demand instead of trend in medical
loss/utilization.
Also, an auto manufacturer will likely place much more emphasis on
risk factors in the category, business process execution. As a
expect this. UHG’s operations do not have the environmental impact of an
auto manufacturer.
The risk category, business strategies and policies, is likely to look
somewhat similar for a manufacturer. While the strategies and policies will
be different, the types of risks listed by UHG are likely to be similar to those
faced by a manufacturer.
The risk category, people, will likely differ somewhat for a
manufacturer. Rather than a focus on fraud and abuse and leadership, the
