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PROBLEMS
25. a. R&D activity should not be tightly controlled by the operating budget. Be-
cause it is difficult to map the relationship between dollars expended and re-
with a budgetary system.
c. Travel expense lends itself to control by budget. The amount of travel is pre-
e. Costs of environmental remediation may lend itself to budgetary control if the
g. The significant costs of classroom buildings include maintenance, utilities, and
27. The key to success in the marketplace for the ZX chip will be to differentiate it
from competitors’ chips. Because this chip has the greatest functionality in the
Another key will be to successfully identify the niche markets that can utilize this
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Cost management of the commodity chip would have focused largely on produc-
tion costs. However, because the ZX chip is not yet in production, the cost man-
operations.
28. a. Procter & Gamble’s decision was based on the high distribution and redemp-
tion costs for the coupons, which could be avoided if the firm discontinued use
b. The market strategy may be to compete more on the basis of price and less on
ume of sales.
29. a. Across-the-board cuts would be a logical approach to cost cutting only if all
organizational units have the same mission. Across-the-board cuts would like-
Across-the-board cuts are typically imposed in lieu of identifying specific
costs to be cut. By imposing across-the-board cuts, top managers are implying
b. A better system of cost management would relate all activities to customer
value. Those activities generating high value relative to cost would not have
been cut. Additionally, the mission of each subunit would have been consid-
c. Both revenues and costs are factors in earning income. Thus, managers need to
focus on generating new revenue because customers leave and products “die.”
Managers need to make certain that products and services are up to date and
will appeal to customers that have previously purchased from the organization
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30. The following are the major problems in the Garage Door Division:
The mission of the division is not defined nor is the broader strategy of the
firm.
Calley has no incentive to invest in assets that will foster future growth. Her com-
pensation is a fixed salary and a bonus based on annual profit. The bonus scheme
The division’s growth is stagnant, and market share is slipping. Further, the
The division is not exploiting information technology. Although it has some
The division is obviously not customer-focused. It has no customer service
Some actions that could be taken to address the problems in the Garage Door Di-
vision follow:
Develop a mission statement for the division that is consistent with the strate-
Develop an integrated cost management system for the firm. The control sys-
tems need to be consistent with the strategy of the firm and the mission of the
An integrated cost management system needs to be developed. The system
should include incentive elements, reporting elements, and information ele-
ments. Informational elements should allow Calley and other managers to ob-
Culturally and structurally, the division needs to become more customer-
focused. Structurally, the division can establish a customer service department
At the corporate level, the company may need to consider more decentraliza-
tion of control. Using the operating budget as the only major control tool may
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31. a. Tyler’s recommendation is insensitive to the difference in strategies of the two
firms. Further, the more crucial performance metrics, e.g., return on invest-
service and marketing. However, there is no indication in the data that this is a
superior strategy to that being pursued by Smart-Mart.
gies.
32. a. Each student will have a different answer; no solution provided.
to the market that the firm’s product was maturing sooner than expected and
that life cycle sales of the product would not meet expectations. Investors re-
c. Each student will have a different answer; no solution provided.
33. a. Ordinarily, the cost management system [CMS] design team creates its design
within the context of decisions made by a strategic planning team. Usually, the
responsibility than for one particular issue.
b. Students will often suggest maximizing profits, maximizing stockholder
mutually supportive.
c. Ignoring the satisfaction of any particular stakeholder such as stockholders,
34. a. If the CMS was built on inaccurate information, in this case indicating re-
serves 20 percent larger than actually existed, managers might have made de-
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elsewhere.
b. The CMS may create incentives to misreport. Because some managers may be
c. Obviously it is not ethical to manipulate information to manage the perception
of performance. Such acts are not only unethical, but are also illegal and lead
nal and civil penalties.
35. a. Product liability costs arise because a product does not work as intended or the
product causes harm to those who use or consume it. Particularly by having a
CMS that is sensitive to customer concerns and customer satisfaction, product
liability costs can be better controlled because managers will better understand
b. Local property taxes are typically assessed based on property values. The
greater the value, the higher will be the taxes assessed. Property taxes are con-
trolled by managing the level of investment in taxable property and by negoti-
ating relief from tax with state and local tax authorities. By having a CMS that
portant to the community.
c. Pollution remediation is necessary only if a firm generates pollution. The gen-
eration of pollution may be reduced if a CMS generates information about en-
vironmental impact and impact on the local community. By understanding the
tion may be avoided or reduced.
d. By having a CMS that generates information on employment, data regarding
employee turnover will be more readily available. Such data will help manag-
e. Warranty expense arises when a product fails to work as intended. Firms that
have a CMS that is sensitive to customer issues should have better information
to manage warranty costs. Specifically, such companies will better understand
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36. a. The changes experienced by the company likely affect both revenues and
costs. Specifically, managing a larger mix of products is likely to significantly
identifying new soft drinks and establishing market share, which, in turn, re-
quires increased marketing expenses and more research and development. Be-
b. Gap analysis is a tool that can be used to update a CMS with a strategic ap-
proach. The process begins by identifying the necessary components of the
system. A priority is established for closing the gaps such that the most crucial
gaps are addressed first and the less crucial gaps are addressed last. When all