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  • Robert E Jensen

    Defense Contractors to Face New Cost Accounting Oversight with Creation of Defense Cost Accounting Standards Board ---
    http://www.natlawreview.com/article/defense-contractors-to-face-new-cost-accounting-oversight-creation-defense-cost

    Jensen Comment
    Since fraud is also monumental in Medicaid and Medicare spending, I would also like to see the formation of a M&M Accounting Standards Board that investigates, among other things, both fraudulent billings by providers and fraudulent benefits by patients such as when half the people on Medicaid in Illinois were not even eligible for Medicaid. I also think there's way too much fraud in the pilfering of estates by heirs so that that grandma or grandpa can get free nursing home care paid for by Medicaid

  • Robert E Jensen

    The Journal of Management Accounting Research: A Citation Analysis of the First 25 Years
    SSRN, May 27, 2016
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2785755

    Authors

    Daryl M. Guffey Clemson University

    Nancy L. Harp Clemson University

    Abstract

    This article provides a citation analysis for the Journal of Management Accounting Research (JMAR) between 1989 and 2013. During this study, citations to articles in JMAR were collected and used to rank articles and authors. Citations collected were used to identify individuals, articles, and methodologies that contributed the most towards establishing JMAR as a premier accounting journal. Rankings were based on (scaled and unscaled) citation count and citation rate. This article also provides information on methodological trends in JMAR and highlights both encouraging and cautionary insights for the future of JMAR.

    Bob Jensen's threads on management accounting ---
    http://www.trinity.edu/rjensen/theory02.htm#ManagementAccounting

  • Robert E Jensen

    Some Topic Summaries on MAAW (especially useful for management accounting history research) ---
    http://maaw.blogspot.com/2016/05/some-topic-summaries-on-maaw.html

    Bob Jensen's threads on accounting history ---
    http://www.trinity.edu/rjensen/theory01.htm#AccountingHistory

  • Robert E Jensen

    Teaching Case
    From The Wall Street Journal Accounting Weekly Review on August 7, 2015

    UPS Earnings Surge, Gives Optimistic Guidance
    by: Laura Stevens
    Jul 29, 2015
    Click here to view the full article on WSJ.com
     

    TOPICS: Cost Accounting, Financial Reporting, Managerial Accounting

    SUMMARY: United Parcel Service Inc. reported strong earnings, delivered optimistic rest-of-the-year guidance and outlined its plans for controlling costs during 2015's peak holiday season. The delivery company said all three of its major business segments contributed to a near tripling in profit to $1.23 billion. The rise also reflected an after-tax charge of $665 million in last year's second quarter that was related to employee health care. The latest results led UPS executives to raise their full-year outlook to the high range of their previous guidance of between 6% and 12% growth in earnings per share.

    CLASSROOM APPLICATION: This article offers a good, small case study of how UPS is reining in costs and approaching its next holiday busy season.

    QUESTIONS: 
    1. (Introductory) What financial results did UPS recently report? Were these results favorable or unfavorable?

    2. (Advanced) What challenges has UPS faced in the past two holiday seasons? What is UPS doing to manage those issues for future busy seasons?

    3. (Advanced) What managerial accounting tools could UPS use to manage the holiday volume more successfully? How could the company adjust pricing to manage volume surges and maintain or increase profitability?

    4. (Advanced) What changes has UPS made? Which of these changes involve variable costs? Which involve fixed costs? How flexible are the company's plans? Does the company need flexibility or are volumes steady?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast
     

    RELATED ARTICLES: 
    UPS, FedEx Got Back On Time This Holiday
    by Laura Stevens
    Dec 29, 2014
    Online Exclusive

    UPS, FedEx Cap Holiday Deliveries Amid Late Surge
    by Laura Stevens and Suzanne Kapner
    Dec 23, 2014

    Online Exclusive

    "UPS Earnings Surge, Gives Optimistic Guidance," by Laura Stevens, The Wall Street Journal, July 29, 2015 ---
    http://www.wsj.com/articles/ups-earnings-surge-led-by-growth-in-international-segment-1438085242?mod=djem_jiewr_AC_domainid

    Chief executive says shipping company looking at reining in costs during holiday season.

    United Parcel Service Inc. on Tuesday reported strong earnings, delivered optimistic rest-of-the-year guidance and outlined its plans for controlling costs during this year’s peak holiday season.

    Despite a slight dip in second-quarter revenue, the news sent UPS shares up 5.1% to $99.94 in 4 p.m. composite trading on the New York Stock Exchange.

    The delivery company said all three of its major business segments contributed to a near tripling in profit to $1.23 billion.

    The rise also reflected an after-tax charge of $665 million in last year’s second quarter that was related to employee health care.

    The latest results led UPS executives to raise their full-year outlook to the high range of their previous guidance of between 6% and 12% growth in earnings per share.

    Executives said the stronger dollar has driven more import traffic to the U.S., boosting the company’s international segment and its bottom line.

    Continued in article

  • Robert E Jensen

    Teaching Case (possible)
    This could be informative to students when teaching cost accounting. Returns vary by location and entrepreneurial skills.

    "Here's what it costs to open a Subway restaurant," by Hayley Peterson, Business Insider, March 19, 2015 ---
    http://www.businessinsider.com/what-it-costs-to-open-a-subway-2015-3

    Subway is one of the cheapest major fast-food restaurants to franchise.

    To open one restaurant, the company requires that potential franchisees have liquid assets of at least $30,000 and a net worth of $80,000 to $310,000, according to Entrepreneur.

    By comparison, McDonald's requires its franchisees to have at least $750,000 in liquid assets.

    Subway franchisees need less money because the sandwich chain's restaurants are cheaper to open.

    Subway's startup costs, which include construction and equipment leasing expenses, range from $116,200 to $262,850, according to the company.

    Opening a McDonald's restaurant requires as much as $2.3 million in startup costs alone, by comparison.

    But Subway restaurants generate less revenue than McDonald's units.

    A Subway restaurant, on average, generates $490,000 in sales annually, compared to $2.5 million in average annual revenue for McDonald's restaurants, according to QSR magazine.

    Subway also charges its franchisees hefty fees.

    The company charges an ongoing royalty fee equal to 8% of gross sales, as well as an advertising fee equal to 4.5% of gross sales. That means 12.5% of each restaurant's revenues go to Subway corporate.

    Here's a breakdown of startup costs, from the company:

    Continued in article

    Read more: http://www.businessinsider.com/what-it-costs-to-open-a-subway-2015-3#ixzz3UqrlqOCq

  • Robert E Jensen

    Institute of Managerial Accountants (IMA) --- http://en.wikipedia.org/wiki/Institute_of_Management_Accountants
    Home Page --- http://www.imanet.org/

    From the IMA
    Conceptual Framework for Managerial Costing
    February 2015
    http://www.imanet.org/resources-publications/research-studies-and-resources/transforming-the-finance-function/mccf

    Full Report --- http://www.imanet.org/PDFs/Public/Thought_Leadership/Transforming_the_Finance_Function/MCCF.pdf

    Jensen Comment
    I'm still looking for an operational concept of the most important measurement in all of accountancy (net earnings) from the IASB, FASB, or IMA. No luck.

    Net earnings and EBITDA cannot be defined since the FASB and IASB elected to give the balance sheet priority over the income statement in financial reporting ---
    "The Asset-Liability Approach: Primacy does not mean Priority," by Robert Bloomfield, FASRI Financial Accounting Standards Research Initiative, October 6, 2009 ---
    http://www.fasri.net/index.php/2009/10/the-asset-liability-approach-primacy-does-not-mean-priority/

    IMA to Endorse Universities Preparing Students for Careers in Management Accounting:  Pennsylvania State University and Washington State University Vancouver Endorsed in Pilot Program ---
    http://www.businesswire.com/news/home/20130807005147/en

    Jensen Criteria
    I was disappointed that the criteria focused mostly on curriculum rather than placement. I would recommend the addition of the proportion of corporate accounting recruiters who visit a campus and the numbers of entry-level job offers to newly-minted accounting graduates in the four-year and five-year programs.

    The IMA struggles to keep managerial accounting from dying in accounting programs. But without more entry-level job offers in corporate accounting it;s an uphill battle.

    Sue Haka, former AAA President, commenced a thread on the AAA Commons entitled
    "Saving Management Accounting in the Academy,"
    --- http://commons.aaahq.org/posts/98949b972d
    A succession of comments followed.

    The latest comment (from James Gong) may be of special interest to some of you.
    Ken Merchant is a former faculty member from Harvard University who form many years now has been on the faculty at the University of Southern California.

    Here are my two cents. First, on the teaching side, the management accounting textbooks fail to cover new topics or issues. For instance, few textbooks cover real options based capital budgeting, product life cycle management, risk management, and revenue driver analysis. While other disciplines invade management accounting, we need to invade their domains too. About five or six years ago, Ken Merchant had written a few critical comments on Garrison/Noreen textbook for its lack of breadth. Ken's comments are still valid. Second, on the research and publication side, management accounting researchers have disadvantage in getting data and publishing papers compared with financial peers. Again, Ken Merchant has an excellent discussion on this topic at an AAA annual conference.

    Bob Jensen's threads on cost and managerial accounting ---
    http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting

  • Robert E Jensen

    Question
    In the realm electric power, what is a "levelized cost?"

    Hint
    The Economist:  Wind and solar power are even more expensive than is commonly thought ---
    http://www.businessinsider.com/free-exchange-sun-wind-and-drain-2014-7#ixzz38bOmPFSx

    . . .

    But whereas the cost of a solar panel is easy to calculate, the cost of electricity is harder to assess. It depends not only on the fuel used, but also on the cost of capital (power plants take years to build and last for decades), how much of the time a plant operates, and whether it generates power at times of peak demand. 

    To take account of all this, economists use "levelised costs"--the net present value of all costs (capital and operating) of a generating unit over its life cycle, divided by the number of megawatt-hours of electricity it is expected to supply.

    The trouble, as Paul Joskow of the Massachusetts Institute of Technology has pointed out, is that levelised costs do not take account of the costs of intermittency. Wind power is not generated on a calm day, nor solar power at night, so conventional power plants must be kept on standby--but are not included in the levelised cost of renewables.

    Electricity demand also varies during the day in ways that the supply from wind and solar generation may not match, so even if renewable forms of energy have the same levelised cost as conventional ones, the value of the power they produce may be lower. In short, levelised costs are poor at comparing different forms of power generation.

    To get around that problem Charles Frank of the Brookings Institution, a think-tank, uses a cost-benefit analysis to rank various forms of energy. The costs include those of building and running power plants, and those associated with particular technologies, such as balancing the electricity system when wind or solar plants go offline or disposing of spent nuclear-fuel rods.

    The benefits of renewable energy include the value of the fuel that would have been used if coal- or gas-fired plants had produced the same amount of electricity and the amount of carbon-dioxide emissions that they avoid. 

    Mr Frank took four sorts of zero-carbon energy (solar, wind, hydroelectric and nuclear), plus a low-carbon sort (an especially efficient type of gas-burning plant), and compared them with various sorts of conventional power. Obviously, low- and no-carbon power plants do not avoid emissions when they are not working, though they do incur some costs.

    So nuclear-power plants, which run at about 90% of capacity, avoid almost four times as much CO{-2} per unit of capacity as do wind turbines, which run at about 25%; they avoid six times as much as solar arrays do. If you assume a carbon price of $50 a tonne--way over most actual prices--nuclear energy avoids over $400,000-worth of carbon emissions per megawatt (MW) of capacity, compared with only $69,500 for solar and $107,000 for wind.

    Nuclear power plants, however, are vastly expensive. A new plant at Hinkley Point, in south-west England, for example, is likely to cost at least $27 billion. They are also uninsurable commercially. Yet the fact that they run around the clock makes them only 75% more expensive to build and run per MW of capacity than a solar-power plant, Mr Frank reckons.

    To determine the overall cost or benefit, though, the cost of the fossil-fuel plants that have to be kept hanging around for the times when solar and wind plants stand idle must also be factored in. Mr Frank calls these "avoided capacity costs"--costs that would not have been incurred had the green-energy plants not been built.

    Thus a 1MW wind farm running at about 25% of capacity can replace only about 0.23MW of a coal plant running at 90% of capacity. Solar farms run at only about 15% of capacity, so they can replace even less. Seven solar plants or four wind farms would thus be needed to produce the same amount of electricity over time as a similar-sized coal-fired plant. And all that extra solar and wind capacity is expensive.

    A levelised playing field

    If all the costs and benefits are totted up using Mr Frank's calculation, solar power is by far the most expensive way of reducing carbon emissions. It costs $189,000 to replace 1MW per year of power from coal. Wind is the next most expensive. Hydropower provides a modest net benefit.

    But the most cost-effective zero-emission technology is nuclear power. The pattern is similar if 1MW of gas-fired capacity is displaced instead of coal. And all this assumes a carbon price of $50 a tonne. Using actual carbon prices (below $10 in Europe) makes solar and wind look even worse. The carbon price would have to rise to $185 a tonne before solar power shows a net benefit.

    There are, of course, all sorts of reasons to choose one form of energy over another, including emissions of pollutants other than CO{-2} and fear of nuclear accidents. Mr Frank does not look at these. Still, his findings have profound policy implications. At the moment, most rich countries and China subsidise solar and wind power to help stem climate change.

    Yet this is the most expensive way of reducing greenhouse-gas emissions. Meanwhile Germany and Japan, among others, are mothballing nuclear plants, which (in terms of carbon abatement) are cheaper. The implication of Mr Frank's research is clear: governments should target emissions reductions from any source rather than focus on boosting certain kinds of renewable energy.

    Bob Jensen's threads on cost and managerial accounting ---
    http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting

  • Robert E Jensen

    "Starbucks Plan Shines a Light on the Profits in Online Education Starbucks Plan Shines a Light on the Profits in Online Education:  That Arizona State U. can afford to offer such big discounts to employees of the coffee company suggests just how much higher-education institutions earn from distance learning," by Goldie Blumenstyk, Chronicle of Higher Education, June 27, 2014 ---
    http://chronicle.com/article/Starbucks-Plan-Shines-a-Light/147395/?cid=wc&utm_source=wc&utm_medium=en

    Jensen Comment
    Without mentioning it, Goldie has hit on what we teach in managerial accounting as "Cost-Profit-Volume (CPV)" analysis. The contribution margin is price minus variable costs. Such margins apply first to recovering fixed costs and then go to operating profits. Higher volume (sales) means that it's possible to make lower contribution margins profitable by lowering prices ceteris paribus.

    Key to CPV analysis is management of variable and fixed costs. The Starbucks plan is ingeniously designed to reduce costs. Firstly it applies only to the continuance of the last two years of college education. This avoids much of the cost associated with students in their first two years. Firstly, it avoids the need for so much remedial work since students that pass the first two years are less likely to need added remedial education. Secondly, such students are less likely to waste resources by dropping out. Thirdly, most of them will have had previous distance education such that they do not have to be initially trained on how to take distance education courses.

    Actually many universities are finding distance education courses more profitable than onsite courses. One reason is the demand function. Onsite courses often are quite sensitive to tuition pricing because students have to consider other costs such as commuting costs, child care costs, and maybe even boarding costs. Online students often avoid such costs and therefore are somewhat less sensitive to slightly higher online pricing. 

    There are many other things that case writers could build into the "Starbucks Case." These include such factors as operating leverage, sales mix analysis, and demand elasticity analysis. Also increasing employee benefits sometimes means that employees will work for lower cash wages.

    In any case, I think it would make sense for managerial accounting teachers to assign student teams to write up cases and solutions to the "Starbucks Case" and other real-world instances of distance education.

     


    Teaching Case on CPV Analysis

    From The Wall Street Journal Accounting Weekly Review on January 6, 2012

    Starbucks to Raise Prices
    by: Annie Gasparro
    Jan 04, 2012
    Click here to view the full article on WSJ.com
    Click here to view the video on WSJ.com 
     

    TOPICS: Commitments, Cost Accounting, Cost Management, Managerial Accounting, Product strategy

    SUMMARY: Starbucks Corp. "said Tuesday it is raising prices an average of about 1% in the Northeast and Sunbelt regions...." Price increases will be posted for some but not all sizes of its brewed coffee products; the company "...isn't raising prices for packaged coffee sold at its cafes or at grocery stores." The article comments on pricing strategy, cost control, and profit margins. The related video discusses the company's purchase of a long term contract for coffee at high prices just before coffee prices fell overall.

    CLASSROOM APPLICATION: The article is useful to introduce manufacturing cost components and cost behavior with a simple product with which most students should be familiar.

    QUESTIONS: 
    1. (Introductory) Why is Starbucks raising the price of some of its locations for some of its products?

    2. (Introductory) On which products will Starbucks raise prices? In which locations? Why will the company's pricing vary by product and region?

    3. (Advanced) According to one statement in the article about Starbucks products, "...coffee represents a bigger portion of the cost of its packaged goods than of brewed coffee." What are the other cost components for a cup of brewed coffee that are not present in a package of whole coffee beans for sale in a grocery store?

    4. (Advanced) What was the impact of a contract for coffee purchases on Starbucks's costs for its product?

    5. (Advanced) Based on the discussion in the related online video, how does Starbucks expect coffee purchase costs to even out over the long term?
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "Starbucks to Raise Prices," by: Annie Gasparro, The Wall Street Journal, January 4, 2012 ---
    http://online.wsj.com/article/SB10001424052970203550304577138922045363052.html?mod=djem_jiewr_AC_domainid

    Starbucks Corp. is raising brewed-coffee prices in some regions to offset its higher costs.

    The Seattle chain said Tuesday it is raising prices an average of about 1% in the Northeast and Sunbelt regions, including such cities as Boston, New York, Washington, Atlanta, Dallas and Albuquerque, N.M.

    Starbucks didn't give details on all the areas where prices will increase but said most southern states are included. Prices won't rise in California and Florida.

    Starbucks has raised prices in its cafes annually since the recession began, though the company said its increases have been "far less" than those of its rivals.

    Starbucks will face higher commodity costs than some of its competitors in the coming months. The chain made contracts to buy coffee for the fiscal year that began in October because prices were rising and Starbucks wanted to eliminate the volatility of buying on the spot market. But the market for coffee soon fell, and Starbucks was stuck paying more than it would have otherwise.

    Over the past couple of years, Starbucks has topped the industry in sales and been able to manage commodity inflation, "not with pricing, but with a more efficient cost structure and strong traffic growth," Chief Financial Officer Troy Alstead said in November when the company reported earnings.

    Because the chain's high-end consumer base is less sensitive to prices than that of some rivals, Starbucks has said it didn't think increases would affect customer purchases, even in a struggling economy. Some chains, especially fast-food restaurants that focus on low prices, risk losing customers when prices rise.

    Starbucks shares rose 43% last year. The stock fell 73 cents, or 1.6%, to $45.29 in 4 p.m. composite trading Tuesday on the Nasdaq Stock Market.

    The latest change, which was reported earlier by Reuters news service, raises the cost of a "tall," or 12-ounce, coffee in some New York City stores by 10 cents to $1.85. Not all sizes will see price increases.

    Starbucks isn't raising prices for packaged coffee sold at its cafes or at grocery stores. That's where Starbucks faces the greater pressure on profit margins, largely because coffee represents a bigger portion of the cost of its packaged goods than of brewed coffee.

    Continued in article

    Bob Jensen's threads on managerial accounting are at
    http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting

  • Robert E Jensen

    The Part 2 Videos from the IMA are Now Available
    7 Trends in Management Accounting - Introduction  ---
    https://www.youtube.com/watch?v=gRyW2_Ay2Cw&hq_e=el&hq_m=1655061&hq_l=12&hq_v=bd6554f22c

    The seven trends that the video series will explore include:

    1) Expansion from product to channel and customer profitability analysis

    2) Management accounting’s expanding role with enterprise performance management (EPM)

    3) The shift to predictive accounting
     

    7 Trends in Management Accounting - Part 2  ---
    http://www.imanet.org/PDFs/Public/SF/2014_01/01_2014_cokins.pdf

    4) Business analytics embedded in EPM methods

    5) Coexisting and improved management accounting methods

    6) Managing information technology and shared services as a business

    7) The need for better skills and competency with behavioral cost management

    "Saving Management Accounting in the Academy," by Sue Haka (former AAA President), AAA Commons, Last Edited February 10, 2012
    http://commons.aaahq.org/posts/98949b972d

    Discussion:
    Saving Management Accounting in the Academy
    Details:
    The long run place of management accounting in the academy seems in peril for several reasons. First, there is an ongoing migration of accounting topics to other disciplines. Second, evidence suggests that the diversity in management accounting research seems to be dwindling. Third, the value of our content for MBA programs is not apparent. Finally, our engagement with the management accounting practitioner community is weak.

    First-topic migration: I don't know about your experiences, but at my institution I must be ever vigilant about traditional management accounting topics migrating into management, marketing, or supply chain classes. While I am delighted that cost-volume-profit topics are important to my marketing colleagues, unfortunately the students that come to my management accounting class after having been "taught" CVP by my marketing colleagues cannot distinguish between fixed and variable costs! Other topics taught by my colleagues include ABC in supply chain and balanced scorecard in management. Making sure that students are required to take a management accounting class prior to classes where discussions about how ABC is important for supply chain decision making requires constant vigilance. Years ago management accounting virtually gave capital budgeting up to the finance department...is fair value measurement next!

    Second-research diversity: I have often been among those who have suggested that general accounting research is not sufficiently diverse (i.e. an overabundance of financial archival focus). I forgot my mother's phrase--when you point at others, three fingers point back at you! Recent reviews of JMAR topical areas suggest a lack of diversity within our discipline. These reviews show an overwhelming focus on performance measurement--in 2008 (2007) 48% (50%) of submitted articles were focused on performance measurement. Only one other category is over 12%. It seems that management accounting research is fairly narrow.

    Third-value in the MBA: Management accounting should be a bedrock of MBA programs. However, we have let financial accounting eclipse management accounting. MBA programs have, over the last decade, decreased accounting content and the majority of that reduction has come out of management accounting. Yet most MBAs become managers and management accounting should be highly value added for them.

    Finally-practitioner engagement: While our colleagues in auditing and financial accounting have opportunities to serve as fellows at the SEC or FASB or take a semester or year to work at one of the big four firms, management accounting faculty have few established programs allowing us to experience first hand many of the issues that we teach and write about. I believe creating these types of opportunities would help us diversify our research and convince others of the value of management accounting for MBAs and in the practicing communities.

    I'm sure you have other issues that imperil the discipline of management accounting. Please add your comments and discussion.

    Note the relatively large number of comments to this article

    Also see
    Accounting at a Tipping Point (Slide Show)
    Former AAA President Sue Haka
    April 18, 2009
    http://commons.aaahq.org/files/20bbec721b/Midwest_region_meeting_slides-04-17-09.pptm

    "Frustrations of a Mover and Shaker for Managerial Accounting," by Gary Cokins, SmartPros, October 2012 ---
    http://accounting.smartpros.com/x74303.xml

    Many who just read "managerial accounting" in this blog's title are not bothering to read this. Why? They do not care. They only care about external financial reporting for regulatory agencies, bankers, and investors. This frustrates me because I interpret this as their not caring about managers and employees who need better internal managerial accounting information for insights and foresight to make better decisions compared to what they are currently provided by their CFO's function.



     

    Should I laugh or cry?

    Allow me to share with you some examples of what frustrates me related to this topic.

    In a recent discussion thread in the website of the Institute of Management Accountants (IMA) there was a post that described how to calculate product and standard service-line costs. The writer meticulously listed the steps. In the final instruction they wrote to “allocate” the indirect and shared support expenses one should use broadly-averaged basis like the number of direct labor input hours, headcount, or square feet. I did not know whether I should laugh or cry! Where have they been the last few decades?

    This primitive cost allocation method totally violates the costing principle of a cause-and-effect relationship between changes in the amount of workload and the products and services that consume those expenses. Activity-based costing (ABC) resolves this. ABC has been researched and promoted since the 1980s. (I was trained in 1988 by ABC’s lead promoter, Harvard Business School’s Professor Robert S. Kaplan. I subsequently wrote several books on ABC.) After implementing my first ABC system, the company was shocked by how different the product costs and profit margins were compared to their existing “cost peanut butter spreading” method. They were exact in total, but not with the parts. I then thought the practice of ABC would take off like a rocket. It hasn’t, but its acceptance continues with a slow but increasing pace. Too slow for me.

    But wait. There is more!

    This blog may now appear to be like a television Ginza knives commercial. There is more!

    I am involved with five university faculty to author a report for the American Accounting Association on reforms for university accounting course curriculums to shift the emphasis of teaching topics from financial to managerial accounting methods. It is a noble effort. What concerns me is how sensitive my co-writers are to the resistance from accounting faculty that this shift would be different from what accounting professors already teach. We will never move finance and accounting professionals frombean counters to bean growers if we continue with traditional practices.

    Another example of my frustration involves adversarial competition for managerial accounting practices. Often driven by self-serving consultants, they advocate managerial accounting methods that only serve their interest. The late Theory of Constraints (TOC) guru Eli Goldratt proclaimed, “Cost accounting is enemy number one of productivity.” He proposed the throughput accounting method, which with investigation only applies under very special conditions of a 24 / 7 / 365 existence of a physical bottleneck like a heat treat oven in a foundry. Some lean accounting advocates slam ABC as being misguided. Both of these methods, if exclusively used, deny strategic analysts understanding of the profit margins of products, services, channels, and customers.

    Cutting through the Clutter

    I participated on a task force that recently published a report for the IMA titled The Conceptual Framework for Managerial Accounting.” It is an exposure draft that anyone interested in it can review and comment on. Our task force’s mission was to determine key accounting principles to reflect economic reality that any managerial accounting system should comply with.

    Many organization’s existing practices would fail compliance with the report’s framework. With financial accounting, if the CFO gets the numbers wrong, they can go to jail! But when they get the managerial accounting information, they don’t go to jail. Nor should they. But at least CFOs should feel embarrassed and irresponsible that they are performing a disservice to their organization’s workforce who increasingly needs much better management accounting information from which to further apply business analytics.

    Continued in article

    Jensen Comment
    Like it or not, the curriculum of accountancy in higher education is driven by entry-level employment opportunities. The heaviest part of the curriculum devoted to passage of the CPA examination is driven largely by the entry-level employment and training opportunities to new graduates by CPA firms, particularly the larger firms. The tax curriculum is driven by those same firms and by the IRS since the IRS has so many entry level opportunities for accounting graduates.

    Management accounting and related disciplines such as internal auditing offer  tremendous opportunities five or more years down the road for experienced accountants but not many opportunities for getting such experience are offered at the time of graduation. Corporations and other organizations like the FBI put accounting graduates between a rock and a hard place. These organizations want experienced accountants but do not offer experience opportunities at the entry level. Instead they lure employees of CPA firms and the IRS away five or more years after the students have graduated.

    Perhaps "lure" is the wrong word here, because many graduates go to work for CPA firms and the IRS with the full intent of moving on to managerial accounting in about five years or more. In other words managerial accounting is part of a long-term career plan after experience is gained as a CPA and/or IRS agent.

    An exception arises sometimes for AIS specialists that are in demand by almost everybody, especially if they have have quite a lot of computer science courses and IT courses in their transcripts. But corporations are not giving entry-level job offers to AIS graduates for managerial accounting. They are seeking very technical employees for their computing, database management, and networking divisions.

    Exceptions arise in the corporate hiring of minority graduates of accounting programs, especially managerial accounting graduates from historically black colleges in the USA.

    Accounting majors who only took one or two AIS courses are not usually "AIS" graduates unless they took a lot more computer programming and IT. These accounting students with only one or two AIS courses are usually headed down an auditing track in CPA firms.

    Bob Jensen's threads on accounting careers are at
    http://www.trinity.edu/rjensen/Bookbob1.htm#careers
    Demand is very high at the moment for accounting graduates from masters programs. Students now need a fifth year to sit for the CPA examination, and most of those opt for a masters program.

    If the corporations really want more managerial accounting in the higher education curriculum then they should compete with the CPA firms for the top entry-level graduates of masters programs. This would also entail offering more formalized training programs like those training programs in the largest CPA firms.

  • Robert E Jensen

    Video
    "Seven Trends in Management Accounting," by Jim Martin, MAAW's Blog, February 18, 2014 ---
    http://maaw.blogspot.com/2014/02/seven-trends-in-management-accounting.html

    Bob Jensen's threads on managerial accounting ---
    http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting

  • Robert E Jensen

    Jensen Comment
    We generally teach good things about the cost advantages of economies of scale. Perhaps we should had illustrations of some of the downers of economies of scale.

    "Why the Promise of Cheap Fuel from Super Bugs Fell Short:  The sell-off of synthetic biology pioneer LS9 goes to show that making biofuels from genetically engineered microbes is harder than though has yet to deliver economically, by Martin LaMonica, MIT's Technology Review, February 5, 2014 ---
    http://www.technologyreview.com/news/524011/why-the-promise-of-cheap-fuel-from-super-bugs-fell-short/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20140205

    . . .

    “Many of the claims being made in connection with biofuels in 2006 and 2007 were way too optimistic,” says MIT biotechnology and chemical engineering professor Gregory Stephanopoulos.

    The trouble, says James Collins, professor of biomedical engineering at Boston University, is that while the science behind these companies was promising, “in most cases, they were university lab demonstrations that weren’t ready for industrialization.”

    In addition to the challenge of designing effective organisms, synthetic-biofuel companies struggle with the high capital cost of getting into business. Because fuels are low-margin commodities, biofuel companies need to produce at large volumes to make a profit. Commercial plants can cost on the order of hundreds of millions of dollars. Some advanced biofuel companies have been able to secure the money for large-scale plants by going public, but now many investors have soured on biofuels. “People want to see things validated a little further along and take more technology risk off the table early. There’s little willingness for investors to pay for proofs of concept,” Berry says.

    Jay Keasling, cofounder of LS9 and the CEO of the Department of Energy’s Joint BioEnergy Institute acknowledges that synthetic-biology companies have moved more slowly than many investors had hoped. He also cautions against expecting bioenergy to undercut petroleum fuels on price any time soon. Making cost-competitive fuels with genetically engineered microbes will require advances in both science and engineering, he says. “We’re never going to have biofuels compete with $20-a-barrel oil—period,” he says. “I’m hoping we have biofuels that compete with $100-a-barrel oil.”

    In theory, hydrocarbons that can power planes and diesel engines are more valuable than ethanol, which has to be blended. But the yield of converting sugars to hydrocarbons is lower than the yield for ethanol because of the basic chemistry, Keasling says, so the economics depend more heavily on the price of sugar. “[Getting] the yields up to make them economically viable is very hard to do,” he says.

    Keasling says new techniques are needed to speed up the process of engineering fuel-producing organisms. If engineers could isolate desired genetic traits quickly and predict how a combination of metabolic pathway changes would affect a microörganism, then designing cells would be much faster, he says. “We need to be as good at engineering biology as we are at engineering microelectronics,” he says. Optimizing crops for energy production and new techniques for making cheaper sugars could also help bring down the cost.

    After cofounding LS9, Berry cofounded another biotech company called Joule that seeks to decouple fuel production from the price of sugar. It has engineered strains of photosynthetic microörganisms to produce fuels using sunlight, carbon dioxide, and nutrients, rather than from sugar (seeAudi Backs a Biofuel Startup” and “Demo Plant Targets Ultra-High Ethanol Production”).

    Given the challenges that have beset synthetic biology companies so far, some new companies are deciding from the outset not to make biofuels. Indeed, the first company to be spun out of Keasling’s Joint BioEnergy Institute—Lygos, based in Albany, California—has decided to make a few high-value chemicals, rather than fuel.

     

  • Robert E Jensen

    "Factory Jobs Are Gone. Get Over It," by Charles Kenny, Bloomberg Businessweek, January 23, 2014 ---
    http://www.businessweek.com/articles/2014-01-23/manufacturing-jobs-may-not-be-cure-for-unemployment-inequality

    In the runup to this year’s State of the Union address, President Obama has been busy trying to fulfill pledges from last year’s. He went to Raleigh, N.C., to announce it would become a high-tech manufacturing hub to ensure that the U.S. attracts “the good, high-tech manufacturing jobs that a growing middle class requires.”

    The president is one of many politicians of both parties as well as pundits who think manufacturing deserves special treatment. But this factory obsession is based on flawed economics. As the Brookings Institute economist Justin Wolfers asked recently, “What’s with the political fetish for manufacturing? Are factories really so awesome?”

    Not really—at least not for the U.S. in 2014. Any attempt to draw lessons from the 1950s, when many a high school-educated (white, male) person got a job in a factory and joined the middle class, doesn’t account for the changes in the U.S. and global economy since the middle of the last century. While it’s smart to focus on creating more stable, remunerative jobs, few of them are likely to come from manufacturing.

    In 1953 manufacturing accounted for 28 percent of U.S. gross domestic product, according to the U.S. Bureau of Economic Analysis. By 1980 that had dropped to 20 percent, and it reached 12 percent in 2012. Over that time, U.S. GDP increased from $2.6 trillion to $15.5 trillion, which means that absolute manufacturing output more than tripled in 60 years. Those goods were produced by fewer people. According to the Bureau of Labor Statistics, the number of employees in manufacturing was 16 million in 1953 (about a third of total nonfarm employment), 19 million in 1980 (about a fifth of nonfarm employment), and 12 million in 2012 (about a tenth of nonfarm employment).

    Service industries—hotels, hospitals, media, and accounting—have taken up the slack. Even much of the value generated by U.S. manufacturing involves service work—about a third of the total. More than half of all people still employed in the U.S. manufacturing sector work in such services as management, technical support, and sales.

    Over the past 30 years, manufacturers have spent more on labor-saving machinery and hired fewer but more skilled workers to run it. From 1980 to 2012 across the whole economy, output per hour worked increased 85 percent. In manufacturing output per hour climbed 189 percent. The proportion of manufacturing workers with some college education has increased from one-fifth to one-half since 1969.

    Across richer countries, growth has been accompanied by a decline in the number of manufacturing jobs and the rise of service jobs. Some of the richer countries, such as France, that have seen the slowest decline in manufacturing’s share of employment have actually suffered some of the most sluggish growth. In the U.S., Eric Fisher of the Federal Reserve Bank of Cleveland suggests that those states where the shift from manufacturing employment has been the most rapid are those where wages have climbed the fastest.

    Developing countries have taken over much of the low-skilled, low-capital production once done in the U.S.: Consider the garment industry or tire manufacturing. Such low-tech work is even more mind-numbing and poorly paid than it was when the work was done in the U.S. through the 1970s. Many of the workers killed in the recent Rana Plaza garment factory collapse in Bangladesh earned just $3 a day. Some politicians have regretted the loss of similar jobs in the U.S. The question is: Do we want such jobs here now?

    Shutting the borders to low-cost imports in the hope of reviving low-skilled manufacturing employment at home would likely kill jobs, not save them. When Obama in 2009 slapped tariffs on Chinese tire imports that had flooded the U.S. market, he temporarily preserved 1,200 jobs in the tire industry as supplies tightened and U.S. tiremakers helped make up the difference. But the impact on the U.S. labor force as a whole was negative. Gary Hufbauer of the Peterson Institute estimates that the cost to U.S. consumers was more than $1 billion. As tires got more expensive, tire buyers had less money to spend on other goods. The effect of that drop in demand on retail employment was a loss of 3,731 jobs, three times the number preserved in the tire industry.

    Champions of reindustrialization often cite the cluster effect as a reason to back manufacturing. If a company builds a factory, then other factories will pop up in the same place to benefit from the industry knowledge and experienced workforce found there. If that theory were strongly supported by the facts, that might be a reason for governments to subsidize early investors in building the first plant somewhere. But work by economists Glenn Ellison of Massachusetts Institute of Technology and Ed Glaeser of Harvard suggests that while “slight concentration is widespread” among industries, “extreme concentration” is the exception. High levels of concentration aren’t a particularly common or unique feature of high-tech manufacturers (although high-tech service industries cluster in Silicon Valley). In manufacturing, the two economists suggest clustering is most evident in fur, wines, hosiery, oil and gas, carpets and rugs, sawmills, and costume jewelry.

    Continued in article

    Jensen Comment
    In the meantime cost and managerial courses and textbooks should be making the shift to accompany changing labor patters such as accounting for complicated indirect costs and services such as medical services, food services, and online selling.

    Bob Jensen's threads on managerial and cost accounting ---
    http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting

    Management and Accounting Web (MAAW) --- http://maaw.info/

  • Robert E Jensen

    Quiz time:
    How well do you know the world of management accounting? Uncertainty about the global economy lingers, and projections for growth are tepid. Issues such as risk management, recruitment and retention of talent, and regulatory red tape remain on the minds of finance professionals. Test your knowledge of the events and trends in management accounting in 2013 with this 13-question quiz from CGMA Magazine ---

    "The CGMA Magazine quiz: 13 questions about management accounting in 2013," by Neil Amato, CGA Magazine, January ---
    http://www.cgma.org/Magazine/News/Pages/20139268.aspx

    Jensen Comment
    I think better questions could be posed about such topics as the future of activities-based costing, capacity accounting, behavioral issues, CAM-I, Chinese Management Accounting, COSO Implementation, electronic commerce, health care managerial accounting, lean accounting, system security, etc.

  • Robert E Jensen

    $4,878 Room and Board Charge for One Night in the Hospital:  Those meals must've been fantastic
    "This $55,000 Bill Is The Perfect Example Of Our Broken Hospital System," by Lauren F. Friedman, Business Insider, December 30, 2013 ---
    http://www.businessinsider.com/redditors-appendectomy-cost-5502931-2013-12
    See a copy of the bill itself (note how the charge for aspirin is now hidden)

    Jensen Comment
    Cost Accounting Student Assignment:  Backflush the line items on this bill to identify possible components and justify the charges
    Hint:  Don't forget hospital bad debts and executive salaries and subtle kickbacks to doctors.
    For example, it's common for physicians in the Emergency Room to recommend at least one night at $10,000 in ICU when a $4,878 room for one night would probably suffice.

    Bob Jensen's health care messaging updates --- http://www.trinity.edu/rjensen/Health.htm

  • Robert E Jensen

    Teaching Case:  Managerial Accounting Courses Should Focus on Long-Term and Short-Term Impacts of Poor Quality on Costs and Revenues
    From The Wall Street Journal Accounting Weekly Review on December 20, 2013

    Lululemon Woes Persist
    by: Ben Fox Rubin and Andrew Dowell
    Dec 13, 2013
    Click here to view the full article on WSJ.com
     

    TOPICS: Cost Management, Managerial Accounting, Quality Costs

    SUMMARY: "Lululemon Athletica Inc. said hits to its reputation and continuing quality problems hurt sales of its yoga gear in November, contributing to a weak outlook that sent the company's stock sliding on Thursday."

    CLASSROOM APPLICATION: The article introduces the managerial topic of cost of quality issues with a product likely of interest to at least the female students in the class.

    QUESTIONS: 
    1. (Introductory) What events have led to Lululemon facing declining foot traffic in its stores? For further background, you may refer also to the related article.

    2. (Advanced) Define cost of quality and name four types of quality costs.

    3. (Advanced) Which types of cost of quality is Lululemon now experiencing? Name all that you can find from the article and support your answer.
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

    RELATED ARTICLES: 
    Lululemon Pants Back in Stores After Recall
    by Suzanne Kapner
    Jun 03, 2013
    Page: B2

    "Lululemon Woes Persist," by Ben Fox Rubin and Andrew Dowell, The Wall Street Journal, December 13, 2013 ---
    http://online.wsj.com/news/articles/SB10001424052702303293604579253882031794794?mod=djem_jiewr_AC_domainid

    Lululemon Athletica Inc. LULU -0.56% said hits to its reputation and continuing quality problems hurt sales of its yoga gear in November, contributing to a weak outlook that sent the company's stock sliding on Thursday.

    The company has long enjoyed a loyal following that enabled it to command premium prices for its clothing.

    But it suffered a string of self-inflicted wounds this year, including the recall of popular yoga pants in March, the surprise resignation of its CEO in June and comments in November by its chairman, who appeared to say new quality problems were the fault of overweight customers.

    Lululemon Chief Financial Officer John Currie said on a conference call with analysts that all of those issues likely contributed to an unexpected drop in store traffic in November.

    "Any time there's negative PR for a company, there's an impact on the business," Mr. Currie said.

    That slowdown, along with quality-control problems that led monitors at the company's distribution centers to reject some product and left stores with inadequate supplies of some gear, prompted the company to lower its outlook for the rest of the year. Shares closed down 12% at $60.39 on Thursday.

    The weak outlook overshadowed growth in the company's third quarter.

    For the quarter ended Nov. 3, the Vancouver-based company reported a profit of $66.1 million, up from $57.3 million. Revenue grew 20% to $379.9 million.

    The company's gross margin slipped to 53.9% from 55.4% as product costs jumped 24%.

    Investors focused on the company's outlook for the holiday quarter.

    Continued in article

    See the topic Quality Cost and Models in MAAW at
    http://maaw.info/QualityRelatedMain.htm

    Bob Jensen's threads on managerial accounting ---
    http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting