978-0078025532 Chapter 1 Solution Manual Part 2

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

1-17

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

1-18

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

1-20

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

1-21

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

1-22

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

1-23

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

1-24

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

1-25

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

1-26

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

1-28

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

1-30

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