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    Julie Smith David
    Managerial Accounting
    question posted April 26, 2010 by Julie Smith David, last edited May 22, 2012 
    12062 Views, 40 Comments
    topic:
    Managerial Accounting
    question:

    I'm working on Phase 5 of a project, and can't figure out how to go from costing to 5 year projections.

    date needed:
    May 13, 2010

    Comment

    • 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

      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

      "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

      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

      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

      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

      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

      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

      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

      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