Introduction To Cost Management Systems: Questions

Chapter 12
CHAPTER 12
INTRODUCTION TO COST MANAGEMENT SYSTEMS
QUESTIONS
1.
Theonlyrealisticmethodofevaluatingwhethercostsarebeingeffectively
managed is to compare the benefits generated with the costs incurred. This
approachisequivalenttoevaluatingthecostsincurredrelativetotheobjectives
thatweretobeaccomplishedfromincurringthecosts.
2.
Acontrolsystemisatooltoaidmanagersinsteeringanorganizationtothe
achievementofitsgoals.Acontrolsystemhasfourcomponents:adetector,an
assessor,aneffector,andacommunicationsnetwork.Acontrolsystemexiststo
keepanorganizationsactualoperationsinlinewithitsplansandstrategies.
3.
Organizationstypicallyhavegoalsandobjectivesforboththeshortandlong
terms.Consequently,organizationsmusthavecontrolsystemsinplacetoensure
thatbothshortandlongtermtargetsareachieved.Forbusinesses,oneimportant
shorttermgoalistoachieveprofits,andalongtermgoalistoremainsolventand
viable.
4.
Everyorganizationisuniqueinitsobjectives,constraints,culture,strategies,
andstructure.Becauseallofthesevariables areimportant determinants ofthe
configurationofacostmanagementsystem,everyorganizationrequiresaunique
costmanagementsystem.
5.
Organizationalforminfluencesthecostmanagementsystemdesigninseveral
ways. For example, organizational form determines, in part, who in the
organization is empowered to make decisions. Also, the organizational form
determineswhethercertaincostswillbeincurred(e.g.,federalincometaxes)and,
whether those costs affect other costs such as the cost of acquiring public or
privatecapital.
6.
Core competencies are activities a firm must execute well to survive.

Informationusefulinassessingcorecompetencieswouldincludebenchmarkdata
from competing firms or other firms, historical performance data, intelligence
regardingactionslikelytobetakenbycompetitors,andmeasurementsystemsto
captureperformanceinareasofcorecompetencies.
7.
Organizational culture can be an effective control device. A culture is a

reflection of the values and practices that are acceptable or preferred by the
company.Themereexistenceoftheculturedeterscertainundesirablepractices
andencouragesotherpractices.Theculturecanbeperpetuatedbyhiringpeople
whohavevaluesthatareconsistentwiththeculture.Inthismanner,thecultureis
perpetuatedandtheemployeeshavehomogeneousbeliefsregardingbehaviors.
2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly
accessible website, in whole or in part.
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Chapter 12
8.
Thelifecyclestagedetermineswhichcostsareimportantandwhichcostsare
controllable. For example, in the design stage, no production costs are being
incurred;so,afocusonproductioncostswouldbeineffectiveandinappropriate.
Instead, the focus should be on research and development costs and product
designcosts.Similarly,inlaterstagesoftheproductlifecycle,noR&Dexpenses
arebeingincurred,andthus,nofocusshouldbegiventothem;rather,production
andmarketingcostsshouldbethefocusofattention.
9.
Costmanagementhasrisentothetopofconcernsbecauseithasbecomea
primarydeterminantofprofitability.Becausecompetitionisincreasinglyacontest
amongequals,thebalanceofpowerinthemarketplacehasbeenshiftedtothe
consumer,whonowhasmanychoicesofcompetitiveproductsandservices.With
many equivalent products competing for consumer dollars, the ability of any
companytocontrolpriceisdiminished.Companiesmustfocusonreducingprice
tomaintainmarketshare;toachievepricereductions,companiesmusteffectively
managecosts.
10.
CAMI isaconsortiumorganizedtodevelopaframeworkforthedesignof
costmanagementsystemsinadvancedmanufacturingsettings.Oneoutcomeof
CAMIwasasetofprinciplesfordesigningcostmanagementsystems.Although
compatiblewithexistingcostaccountingsystems,thesetofprinciplesasawhole
suggests a radical departure from traditional practices. The practices focus
managementattentiononorganizationalactivities,productlifecycles,integrating
cost management and performance measurement, and integrating investment
managementandstrategicmanagement.
Chapter 12
EXERCISES
11.
Withoutmanagementcontrols,firmslackthenecessarycoordination
betweentheirstrategiesandthemanagementandapplicationofscarceresources
suchascapitalandhumanresources.Withmanagementcontrols,the5Qowners
would have obtained information about future cash constraints, relationships
betweenrevenuesandcostsandcapitalneeds.Organizingabudgetlinkedtothe
strategicplanwouldhavebeenagoodstartingpointfordevelopingmanagement
controls.Preparingabudgetwouldhaveforcedthegrouptoconsiderhowtodeal
withcashshortagesandwouldhavebeenavaluablebenchmarkforevaluating
actualcostsandrevenues.
12. a.
The assessor is the device that compares actual results with

expectationsand calculates variances.
b.
Thecommunicationsnetworkreportsvarianceresults to the appropriate

parties.
Theeffector implements changes that act onthedifferencesbetween
expectations and actual results to cause the actual results to align with
expectations.
c.
d.
Thedetectormeasurescostsofactualoperations.
13. Two observations arise from an examination of the data. First, Firm A is
generatingmoreprofitperdollarofsalesthanistheaveragefirmintheindustry.
Althoughtheaveragefirmgeneratesprofitequalto10percentofsales($0.096
$0.96),FirmAsprofitsareawhopping27percentofsales($0.54$2).Second,
relative to its sales, Firm A is spending much less on advertising, R&D, and
investmentinnewfacilitiesasindicatedinthefollowingtable:
SPENDINGASAPERCENTAGEOFSALES
FirmA
IndustryAverage
Advertising
2%
17%
R&D
8%
25%
Facilitiesinvestment
10%
25%
WhileoneinterpretationofthedataisthatFirmAismuchmoreprofitablethan
theaveragefirmintheindustrybecauseitismoreeffectivelymanagingitscosts,
theoppositeislikelytrue.FirmAisrobbingfromitsfuturetoincreasethecurrent
levelofprofits.UnlessFirmAstartsinvestingmuchmoreheavilyinthethree
areasfeaturedintheproblem,thefirmwillstarttolosemarketshare,saleswill
drop,andprofitswilldeclinedramatically. Another possibility is that Firm A is
engaging in fraudulent financial reporting.
14. a.
The focus of management would be on quality and customer

satisfaction. Quality could be assessed from both an internal and external
perspective. Forexample, internal measures couldinclude mortality rate for
specific illnesses/injuries, and recovery time for specific illnesses/injuries.
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Externalmeasurescouldincludecustomerassessedquality.Suchdatacouldbe
gatheredinexitinterviewsorsurveys.
b. The key to the survival of this business is generating sales from the first
productandcompletingthedevelopmentoftheotherproducts.Accordingly,
the focus would be on getting the first product to market as quickly as
possible,monitoringsalesandmarketshareofthatproduct,andgettingthe
otherproductsthroughthedevelopmentpipeline.
c. The focus would be on operating efficiency. Because this industry is
characterizedasproducingacommodityproduct,andbecausethereisexcess
capacityintheindustry,survivalandprofitabilitydependonprocessingthe
raw sugarinto refined sugar as efficiently as possible. Thus,thecompany
wouldfocusveryintentlyonmanagingoperatingcosts,andstrategicdecisions
wouldberelatedtoremainingcompetitiveinmanagingcostsandoperational
efficiency.
15. Thepapershould,ataminimum,discussthefollowingpoints:
The corporation is relatively more expensive to launch than the other

organizationalforms.
Thegeneralpartnershipistheleastexpensiveformtoorganize.
Outsidecapitaliseasiertoraiseinthecorporateformbecauseofthelimited
liability protection offered to shareholders along with the welldeveloped
secondarymarketsforpubliclytradedstocks.
Separation of ownership and management is most difficult in the general
partnershipform.Itisprobablyeasiesttoachieveinthecorporateform.
Onlythecorporationissubjecttoincometaxes.Theotherentityformscanbe
taxedaspassthroughentities.
Onlythegeneralpartnershipexposestheinvestorstounlimitedliability.The
otherformsofferlimitedliabilityto(at a minimum) passive investors.
16. Eachstudentwillhaveadifferentanswer;nosolutionprovided.
17. ThediscussionshouldcenteronhowB2Bcouldincreasecompetitionamong
vendorstoprovidesuppliesandinputstoasmallbusiness.Theeffectofthe
technologyistoreducethesearchandtransactioncostsforvendorstoprovide
a bid to potential buyers. Thus, the effect of the B2B system should be to
increase the competition among potential vendors for the privilege of
supplyingthesmallcustomer.
19. Theoldadageyougetwhatyoumeasureappliestotheuseofaccounting
information.Eachstudentwillhaveadifferentanswer,butthemajorpointsthat
shouldberaisedinthediscussioninclude:
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Accounting information will promote goal achievement only if the

measurements are highly correlated with the goals. Alternatively, goal
congruenceproblemswillbecreatediftheaccountinginformationcaptures
performancedimensionsthatarenothighlycorrelatedwithgoalachievement.
Theuseofnonfinancialperformancemeasuresmayservetostrengthenthetie
betweenaccountinginformationandgoals.
Onlyiftheaccountinginformationisaccuratewillitservetopromotegoal
congruenceandgoalachievement.
Only if the accounting information is used as a basis to both measure
performance andrewardemployees willitberelevant. Evenifaccounting
information is highly correlated with organizational goals, managers and
employeeswillignoretheinformationunlessitdirectlyaffectstheirwelfare.It
willaffecttheirwelfareiftheirevaluation,pay,andpromotionarebasedon
accountingmeasurements.
21. a.The motivational elements create the incentive and reward for managers to
performatahighlevel.Becausetheaccountingsystemisusedtomeasurethe
performance of managers, the manipulation of the accounting system can
result in managers receiving larger rewards without actually achieving the
expected level of results. In short, managers can get the rewards by
manipulatingthemeasurementratherthanachievinghighperformance.
b. The behavior is both unethical and illegal. Manipulating the accounting
systemisadeceptionthatharmsallstakeholdersotherthanthemanagerswho
profit from the manipulation. These acts undermine the confidence of
investors in accounting reports and increase the cost of capital to firms
becauseinvestorshavegreateruncertaintyabouttheaccuracyofthereported
financialresults.
22. a.Reportingstockoptionexpenseinthefootnotesachievestwoeffects.First,true
management compensation becomes less transparent to stockholders and
others; second, reported earnings appear higher than they really are
particularly to investors who are not sophisticated enough to evaluate the
footnotedisclosures.
b. Thepracticewasmisleadingonlytofinancialstatementuserswhowerenot
sophisticated enough to evaluate the footnote information. Because the
footnotedisclosureswereconsistentwithGAAP,mostinvestorswouldlikely
notperceivethepracticeasunethical.Nevertheless,thepracticewasnotthe
mosttransparentapproachtoinforminginvestorsaboutstockoptionexpense.
c.Theresearchwillrevealthatbackdatinginvolvesissuingtheoptionsonone
datebutplacinganearlierdateontheoptionsgenerallyadateatwhichthe
underlyingstockwastradingnearitsannuallowprice.Thus,atthedateof
issuance, the stocks were already in the money. Stock options are most
commonlyissuedatthemoney.
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Chapter 12
23.
Each student will have a different answer, but the memo should include the
following points. GapanalysisbeginswithspecifyingthedesiredCMS.Oncethe
desiredCMSisdescribed,thatsystemcanbecomparedtotheexistingsystem.
Thedifferencesbetweenthedesiredandactualsystemsarecallgaps.Oncethe
gapsareidentified,theycanbeprioritized,andastrategycanbedevelopedto
closethegaps.Oncethegapshavebeenaddressed,theexistingsystemshould
alignwiththedesiredsystem.
24.
OnewouldbeginbyidentifyingtheneededcomponentsofaCMSgiventhe
currentsizeandcomplexityofthebusiness.Withthisstepcompleted,theexisting
CMScomponentswouldbecomparedtothecomponentsidentifiedinthefirst
step.Thisprocesswouldidentifythedifferencesorgapsintheexistingsystem
thatneedtobeaddressed.Becauseofconstrainedresources,itisunlikelythatall
gapscouldbeaddressedsimultaneously,somanagementwouldprioritizethegaps
and develop strategies to close them. Once all gaps have been addressed, the
components of the existing system should closely align with the components
identifiedinstepone.
Chapter 12
PROBLEMS
25. a.R&Dactivityshouldnotbetightlycontrolledbytheoperatingbudget.Because
itisdifficulttomaptherelationshipbetweendollarsexpendedandresearch
anddevelopment,expendituresinthisareashouldbemanagedmoresowith
judgmentthanwithsystemssuchasbudgets.
b. Management of marketing expense is crucial in a startup company. The
growthofthecompanywillcriticallyhingeonthesuccessofthemarketing
efforts.Further,itisdifficulttoengineertherelationshipbetweenmarketing
expenditures and market impact of those expenditures. Accordingly,
marketingexpenseforthestartupshouldbemanagedwithexpertjudgment
ratherthanwithabudgetarysystem.
c. Travel expense lends itself to control by budget. The amount of travel is
predictable,theexpectedcostofthattravelcanbereasonablyestimated,and
therefore,abudgetisanexcellentcontroltool.
d. Theenergycostsincurredbyapublicutilitycompanyshouldbetightlyrelated
tothequantityofenergysoldtoitscustomers.Thatis,thereiseffectivelyan
engineered relationship between energy consumed and quantity of utility
serviceprovided.Thiscircumstanceisidealforcontrolbyabudget.
e. Costsofenvironmentalremediationmaylenditselftobudgetarycontrolifthe
scopeoftheremediationisknownandthecostsoftheremediationcanbe
reasonablyestimated.
f. Manufacturingcostsareideallycontrolledwiththeoperatingbudget.Thenumber
ofcarstobeproducedcanbereliablyestimated,thecostsofcomponentsand
conversioncanalsobeestimatedreliably.Accordingly,thebudgetshouldbea
verygoodbenchmarkforevaluatingactualmanufacturingexpenses.
g. Thesignificantcostsofclassroombuildingsincludemaintenance,utilities,and
cleaning.Thesecostscanbereliablyestimatedandlendthemselvestocontrol
bytheoperatingbudget.
26.
27.
Eachstudentwillhaveadifferentanswer;nosolutionprovided.
ThekeytosuccessinthemarketplacefortheZXchipwillbetodifferentiateit
fromcompetitorschips.Becausethischiphasthegreatestfunctionalityinthe
marketplace, it should command the highest price. However, to successfully
market the chip at a price higher than competitors, the market needs to be
educatedaboutthefeaturesandbenefitsofusingthechip.Accordingly,akeyto
successwillbethemarketingandsalescampaignthatintroducesthischiptothe
market.
Anotherkeywillbetosuccessfullyidentifythenichemarketsthatcanutilizethis
highlyfunctionalchip.Ifidentificationofsuchnichesissuccessful,thevolumeof
chipssoldcanbesufficienttocoverthechipsproductionanddevelopmentcosts.
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Chapter 12
Thus, the objective is to quickly gain market share with the new chip by
exploitingthechipsfunctionalityinappropriatemarkets.
Cost management of the commodity chip would have focused largely on
productioncosts.However,becausetheZXchipisnotyetinproduction,thecost
managementfocusshouldbeonthemarketingandsalescampaign.Thegoalisto
obtain as large a market share as possible with the dollars expended. Also,
becausetheZXchipisscheduledtobeginproductionsoon,therewouldbeacost
focusonthedesignandimplementationofproductiontechnologyandconversion
operations.
28.a. Procter & Gambles decision was based on the high distribution and
redemption costs for the coupons, which could be avoided if the firm
discontinueduseofcouponsasapromotiontool.Thecostsavingsrepresent
thebenefitstoberealized.Therearetwomajorcostsofdiscontinuingtheuse
ofcoupons:(1)thepotentiallossofexistingcustomersand(2)thecostof
alternativepromotionmechanismsthatwouldbeusedtoreplacethecoupons.
b. Themarketstrategymaybetocompetemoreonthebasisofpriceandlesson
thebasisofproductdifferentiation.Byspendinglessonproductpromotion,
thecompanywillhavealowerbreakevenpoint,andbyloweringtheprice,it
mayrecoupsomeofthelossinprofitsperunitthroughanincreaseinthe
volumeofsales.
29. a. Acrosstheboardcutswouldbealogicalapproachtocostcuttingonlyifall
organizational units have the same mission. Acrosstheboard cuts would
likelyhaveamuchmoredetrimentallongtermeffectonunitswithabuild
missionthanotherunits.Byimplementingmajorcutstounitswithabuild
mission,acompanymaybeseverelyharmingitsfuture.
Acrosstheboard cuts are typically imposed in lieu of identifying specific
coststobecut.Byimposingacrosstheboardcuts,topmanagersareimplying
thatnoactivitiesaremorecrucialthananyotheractivitiestothecompanys
profitability and survival. Such a perspective is strong evidence that the
companyisnotmanagingitscostrelativetoitsstrategy.
b. Abettersystemofcostmanagementwouldrelateallactivitiestocustomer
value.Thoseactivitiesgeneratinghighvaluerelativetocostwouldnothave
been cut. Additionally, the mission of each subunit would have been
considered in identifying which costs to cut. Those subunits with a build
missionwouldlikelybeprotectedfromcostcuttingtosomeextent.Also,the
companywouldconsiderwhichcorecompetenciescouldbedamagedbycost
cuttingmeasuresandwouldtakestepstomakecertainthatthosecompetencies
wereprotectedfromeffectsofseverecostcutting.
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
Chapter 12
as well as customers who have not bought before. If costs are not managed
and controlled, there may be a cost creep that occurs: costs inch up slowly
over time. Therefore, costs must be continually analyzed and reviewed to
determine if they are necessary and if the best cost is obtained for all
business acquisitions (materials, labor, plant assets, etc.).
ThefollowingarethemajorproblemsintheGarageDoorDivision:
30.
Themissionofthedivisionisnotdefinednoristhebroaderstrategyof
thefirm.
Calleyhasnoincentivetoinvestinassetsthatwillfosterfuturegrowth.
Hercompensationisafixedsalaryandabonusbasedonannualprofit.Thebonus
schemedoesnotencouragegrowth.Thissituationisaggravatedbythefactthat
Calleyis53yearsoldandmaybecontemplatingretirementinthenottoodistant
future.
The divisions growth is stagnant, and market share is slipping.
Further,thedivisiondoesnotseemtohaveamajorpresenceinthegrowth
sectorofthemarket,ornamentalproducts.
Thedivisionisnotexploitinginformationtechnology.Althoughithas
somecomputerizedsystems,thereisnoapparentintegrationofsystems.
Thedivisionisobviouslynotcustomerfocused.Ithas nocustomer
service department and apparently no outofoffice sales staff to promote
products.
Theannualoperatingbudgetistheonlymajorcontroltoolusedby
uppermanagement.
SomeactionsthatcouldbetakentoaddresstheproblemsintheGarageDoor
Divisionfollow:
Develop a mission statement for the division that is consistent with the
strategyofthefirm.Astrategicplanshouldalsobecompiled.
Develop an integrated cost management system for the firm. The control
systemsneedtobeconsistentwiththestrategyofthefirmandthemissionof
thedivision.Fromthestronggrowthrateoftheindustry,someincentivesneed
tobedevelopedtoencouragegrowthinmarketshareandsales.Evenifthe
missionisholdratherthangrow,thereisopportunityforthedivisiontoregain
lostmarketshare.
Anintegratedcostmanagementsystemneedstobedeveloped.Thesystem
should include incentive elements, reporting elements, and information
elements.InformationalelementsshouldallowCalleyandothermanagersto
obtaintheinformationtheyneedtomakethedivisiongrow.Forexample,the
division needs to develop the capability to determine what characteristics
(quality, features,etc.)theircustomers desireingaragedoorhardwareand
otherproducts,theabilitytomonitoractionsofcompetitors,andthenecessary
informationtoevaluatecostcontrolefforts.
Culturally and structurally, the division needs to become more customer
focused.Structurally,thedivisioncanestablishacustomerservicedepartment
and develop an external sales force to gather information from customers.
Culturally, the division can become more customerfocused by developing
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Chapter 12
incentives for employees. Customerrelated incentives could be based on

measuresofquality,leadtime,productinnovation,andcustomerservice.
At the corporate level, the company may need to consider more
decentralization of control. Using the operating budget as the only major
controltoolmayplacelimitsonactionsthatCalleyandhermanagerscantake
to improve operations. With decentralization of control, corporate
managementcoulddevelopnewreportingelementsforthecostmanagement
systemthatwouldfacilitategrowthintheGarageDoorDivision.
31. a.
Tylersrecommendationisinsensitivetothedifferenceinstrategiesof
thetwofirms.Further,themorecrucialperformancemetrics,e.g.,returnon
investment,orreturnonequity,aremissingfromTylersanalysis.Thehigher
gross margin and higher selling and administration costs experienced by
Tracysisindicativeofastrategyofdifferentiation.Thehighersellingand
administrationcostsarenecessarytosupportdifferentiationactivitiessuchas
customerserviceandmarketing.However,thereisnoindicationinthedata
thatthisisasuperiorstrategytothatbeingpursuedbySmartMart.
b. Assuggestedabove,returnoninvestment,orreturnonequity,wouldbemore
importantperformancecriteria.Ifonestrategy(oronesexecutionofstrategy)
issuperior,itshouldbereflectedinthesemetrics;i.e.,thesemetricsarenot
specific to any strategy and are appropriate metrics to compare across
strategies.
32. a.
Eachstudentwillhaveadifferentanswer;nosolutionprovided.
b.
MuchofHeelysstockpricevaluewasbasedonthebeliefthatsaleswould
keepgrowing,andhence,futureprofitswouldbemuchhigherthancurrent
profits.Theact ofcutting sales estimates infutureperiods signaledtothe
marketthatthefirmexpectedtherateofgrowthtoslow.Inshort,thisact
signaled to the market that the firms product was maturing sooner than
expectedandthatlifecyclesalesoftheproductwouldnotmeetexpectations.
Investorsreactedstronglyandrevisedtheirexpectationsaboutfutureprofits
andthestockpricethatwasjustifiedbythoseexpectations.
c.Eachstudentwillhaveadifferentanswer;nosolutionprovided.
33.a. Ordinarily,thecostmanagementsystem[CMS]designteamcreatesitsdesign
withinthecontextofdecisionsmadebyastrategicplanningteam.Usually,the
strategic planning team recommends and management gains company
consensusregardingvision,mission,andmajorcompanygoalsandobjectives.
However,insmallcompanies,teamsaresometimeschargedwithabroader
responsibilitythanforoneparticularissue.
b. Students will often suggest maximizing profits, maximizing stockholder
wealth,ormaximizingcustomersatisfaction.Thetruthisthatthesegoalsare
mutuallysupportive.
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c. Ignoringthesatisfactionofanyparticularstakeholdersuchasstockholders,
managers, or customers can have a disastrous effect on the remaining
stakeholders. Therefore, a balance must be achieved in a manner that
considersthewellbeingofallofthesestakeholderssimultaneously.
34. a.
IftheCMSwasbuiltoninaccurateinformation,inthiscaseindicating
reserves20percentlargerthanactuallyexisted,managersmighthavemade
decisions that were not in the best longrun interest of the company. For
example,thefirmmayhavesoldreservesthatitwouldnothavesoldifmore
accurateinformationwouldhavebeenavailable.Also,thecompanymayhave
investedcapitaltodevelopoilfieldsthatwerepurportedtocontainmoreoil
than theyactually did contain. This capital mayhave beenbetter invested
elsewhere.
b. TheCMSmaycreateincentivestomisreport.Becausesomemanagersmaybe
compensated based on performance of the companys stock, or other
performancemetricsdirectlyrelatedtooilandgasreserves,thosemanagers
haveanincentivetomanipulateinformationthatunderliesthosemetrics.
c. Obviouslyitisnotethicaltomanipulateinformationtomanagetheperception
ofperformance.Suchactsarenotonlyunethical,butarealsoillegalandlead
toharshpunishmentofthefirmbythecapitalmarketswhensuchdeceptions
are uncovered. Further, those involved in such deceptions are subject to
criminalandcivilpenalties.
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
customersatisfaction,productliabilitycostscanbebettercontrolledbecause
managerswillbetterunderstandhowconsumersusetheirproductsand,thus,
willbebetterabletoidentifyrisksintheuseoftheproducts.
b. Local property taxes are typically assessed based on property values. The
greaterthevalue,thehigherwillbethetaxes assessed.Propertytaxes are
controlledbymanagingthelevelofinvestmentintaxablepropertyandby
negotiatingrelieffromtaxwithstateandlocaltaxauthorities.Byhavinga
CMS that is sensitive to performance from the perspective of the local
community,thefirmmaygenerateinformationthatisusefulinjustifyingtax
breaks granted by local and state tax authorities. Such information might
demonstratethecontributionofthefirmtoemploymentinthecommunityand
tosocialcausesimportanttothecommunity.
c. Pollution remediation is necessary only if a firm generates pollution. The
generationofpollutionmaybereducedifaCMSgeneratesinformationabout
environmentalimpactandimpactonthelocalcommunity.Byunderstanding
theimpactofpollutionontheenvironmentandthelocalcommunity,pollution
generation may be justifiably reduced and the expense of pollution
remediationmaybeavoidedorreduced.
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d. ByhavingaCMSthatgeneratesinformationonemployment,dataregarding
employee turnover will be more readily available. Such data will help
managersunderstandthecostsassociatedwithemployeeturnoveranddevelop
programstoimproveemployeeretentionandavoidthecostsofturnover.
e. Warrantyexpenseariseswhenaproductfailstoworkasintended.Firmsthat
haveaCMSthatissensitivetocustomerissuesshouldhavebetterinformation
tomanagewarrantycosts.Specifically,suchcompanieswillbetterunderstand
the customer consequences of having product failures and the cost
consequences of those failures, which include warranty expense. This
understandingmayleadtoimprovedproductdesignandinvestmentinquality
control.
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36. a.
Thechangesexperiencedbythecompanylikelyaffectbothrevenues
and costs. Specifically, managing a larger mix of products is likely to
significantlyincreasethecomplexityofmanufacturing.Moresetupswillbe
required,moresupplierswillberequired,moredistributionchannelsmustbe
managed, and more transportation channels must be utilized. All of these
changeswouldincreasecosts.Thegenerationandgrowthofrevenuesdepends
on constantly identifying new soft drinks and establishing market share,
which,inturn,requiresincreasedmarketingexpensesandmoreresearchand
development. Because the life cycles of these products are shorter than
traditionalsoftdrinkproducts,thelifecyclerevenuesarelessthantraditional
products.
b.
GapanalysisisatoolthatcanbeusedtoupdateaCMSwitha
strategic approach. The process begins by identifying the necessary
components of the CMS, given the firms strategy and current operating
environment. Next, the existing CMS is compared to the components
identified in step one. Differences between the needed and existing
componentsarecalledgaps.ClosingthegapscausestheexistingCMStobe
reconfigured according to the desired system. A priority is established for
closingthegapssuchthatthemostcrucialgapsareaddressedfirstandtheless
crucialgapsareaddressedlast.Whenallthegapsareclosed,thenecessary
componentsoftheCMSshouldbeinplace.
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Chapter 12

Core competencies are activities a firm must execute well to survive.

Organizational culture can be an effective control device. A culture is a

The assessor is the device that compares actual results with

Thecommunicationsnetworkreportsvarianceresults to the appropriate

The focus of management would be on quality and customer

The corporation is relatively more expensive to launch than the other

Accounting information will promote goal achievement only if the

incentives for employees. Customerrelated incentives could be based on

Product liability costs arise because a product does not work as

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