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Because accountants have managed the information flow that has facilitated de-
centralization, they have extensive data on the performance of many internal man-
pool to fill vacated top executive positions.
33. While each student will have a different answer, the following points should be
made.
a. The success of price-based competition is linked to the cost structure of the
GM.
b. Greater flexibility to outsource components should have a positive impact on
quality. Because GM would always have the choice to make components that
cannot be obtained from a vendor with the appropriate level of quality, the
ity.
c. GM has an ethical obligation to its existing employees to be fair in its negotia-
tions. However, if GM is not given greater flexibility to outsource, eventually
its entire employee base could be in jeopardy as the inflexibility may lead to a
minish the need to outsource.
d. When GM’s bankruptcy was settled, the United Auto Workers owned 17 per-
cent of GM’s common stock and gained at least one seat on the board of direc-
34. a. Tennessee Transmissions’ average gross profit has declined from $160 to only
$45 within the past year on the transmission. At the same time, the industry
average gross profit declined at a much slower rate: from $140 to $75. The de-
For the first quarter of 2012, Tennessee Transmissions had a market share of
520 Chapter 19
the company’s unit sales slipped and its market share dropped to about 8.6
percent (3,450 ÷ 40,000). This information indicates Tennessee Transmis-
sions’ selling price did not drop as fast as the industry average, and sales were
lost as a result. This fact is confirmed by calculating average sales price for
Tennessee Transmissions for the first quarter of 2012, $1,525 ($6,405,000 ÷
over the last year.
Because Tennessee Transmissions has no quality or functionality advantage
over other industry competitors, the company must find ways to reduce its
b. Several ways to reduce costs are evident. First, Tennessee Transmissions pro-
duces about 83 percent of its components, a much higher proportion than the
industry average of 57 percent. Thus, the company should consider outsourc-
ing some components. Second, Tennessee Transmissions should consider re-
Another possibility is for Tennessee Transmissions to consider acquiring more
machine-intensive production technology to reduce product labor content. A
third cost-reduction approach is to consider the application of BPR to redesign
production operations for greater efficiency. A fourth possibility is to redesign
Finally, the company might consider developing incentives for internal cost
35. a. The level of competition in the global business environment requires a high
level of cooperation and information sharing between managers and employ-
quently, the ethical treatment of employees is likely a prerequisite for a firm to
achieve high performance.
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b. Open-book management is a philosophy that requires a very high level of trust
between employees and managers. A company’s use of downsizing as an or-
36. a. Strategic alliances involve a greater degree of integration of two or more com-
panies than is obtained in traditional supplier/customer relationships. Accord-
fore, the ability to manage quality in a strategic alliance may depend heavily
on selecting partners that are quality oriented.
control quality.
37. a. Serving a rotation in production, quality management, and other functional
areas would better allow the financial specialist to understand the business
b. With a cost management specialist on the team, the team would be better
managing cost drivers.
38. a. Transparency refers to making financial information truthful and easy to com-
prehend by the information consumer. These characteristics require the adop-
b. Open-book management is wholly consistent with financial reporting trans-
ous to the user.
39. The memo to Johnson should address the following points:
Implementation of open-book management should be preceded by training.
Specifically, Thompson must receive training so that he will understand the
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accessible website, in whole or in part.
The financial information that is to be used as a basis for managing specific
departments may need to be modified to match the information consumer’s
Selecting overhead as the first cost to reduce is likely to be less successful than
selecting direct costs. Furthermore, Thompson may not be able to control many
If Thompson is to be evaluated based on accounting measurements, he should
not be told by others where to begin improving cost performance. He should
Rather than implementing open-book management techniques simultaneously
in all departments, perhaps a pilot project should be initiated first so that un-
The accounting department should have been consulted before attempting to
implement open-book management in any department. Cooperation and
Before implementing open-book management in any department, appropriate
departmental performance measurements should be determined. The perfor-
40. While each student will have a different answer, the following points should be
made based on the data given. First, the company can develop a more environ-
Next, responsibility for controlling environmental costs should reside with a spe-
cific individual or set of individuals. Once the chart of accounts is modified to bet-
To achieve environmental cost cuts, specific strategies must be devised for con-
trolling environmental effects. Beginning with the most toxic wastes, strategies
must be developed to eliminate waste where feasible, reduce waste elsewhere, and
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accessible website, in whole or in part.
41. While each student will have a different answer, the following points should be
made.
b. Many examples exist of companies knowingly disposing of waste improperly
against improperly disposing of waste.
Ethically, it is difficult to justify the endangerment of an innocent population
If the company’s only means of survival is the improper disposal of waste, its
economic future is not in doubt. It is only a matter of time before the company
merely extending the inevitable failure.
The greater the waste toxicity, the greater is the likelihood that adverse effects