Ayoko Na

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Chapter 16
Operational Performance Measurement: Further Analysis of Productivity and Sales


16-1Dallas Consulting Group


16-1: “Profit Variance Analysis: A Strategic Focus” by Vijay Govindarajan, John K. Shank, Issues in Accounting Education (Fall 1989).

This article uses a fictitious case to demonstrate how variance analysis can be tied explicitly to the strategies of the firm. It expands the Shank and Churchill framework (explained in the article) for variance analysis to include explicitly the strategy and the competitive position of the firm in the analysis and interpretation of results.

Discussion Questions:
1.Why is it inadequate and may even be misleading to rely only on the analysis reported in Table 3? 2.Does a favorable variance imply favorable performance?
3.Table 4 shows a rather elaborate and detailed analysis of variances of operating results. The analysis provides us information on the effect of variations of relevant operating factors on the operating result. The analysis includes relevant and important operating factors such as total market size, market share of the firm, sales mix, selling price, and costs. The analysis considers almost all, if not all, the factors that are of interest and important to management. Why is the analysis incomplete?

16-2: “Examining the Relationships in Productivity Accounting” by Anthony J. Hayzen, James M. Reeve, Management Accounting Quarterly (Summer 2000).

Change in profit of a firm or business unit can be analyzed in terms of a change in productivity and a change in price recovery. Change in product quantities and change in resource quantity drive the change in productivity. Change in product prices and change in resource prices drive the change in price recovery. These relationships can be displayed to provide an instant visual analysis of the causes of profit change. Such visualization can provide a robust method for analyzing strategy and stakeholder relationships.

Discussion Questions:
1.What is productivity accounting?
2.How can productivity accounting guide the overall strategy of the firm? 3.Give an example showing that a traditional business performance indicator may give conflicting signals on a firm's performance. 4.What are the elements in using productivity accounting to evaluate changes in profits? 5.What grid diagrams are needed in order to have an overall picture of the business's performance?

16-3: “Lean Accounting: What’s it All About?” by Frances A. Kennedy, and Peter C. Brewer, Strategic Finance (November 2005), pp.27-34.

This article provides and introduction and illustration of the concept of lean accounting. The illustration is based on an actual company, which is given the disguised name MIP.

Discussion Questions:

1. Why lean accounting?
2. What are the five steps of the lean thinking model?
3. What four areas did MIP address in implementing lean accounting? 4. How is waste defined in lean accounting?

16-1 Dallas Consulting Group

“I just don’t understand why you’re worried about analyzing our profit variance,” said Dave Lundberg to his partner, Adam Dixon. Both Lundberg and Dixon were partners in the Dallas Consulting Group (DCG). “Look, we made $800,000 more profit than we expected in 2009 (see Exhibit 1). That’s great as far as I am concerned.” Continued Lundberg. Adam Dixon agreed to come up with data that would help sort out the causes of DCG’s $800,000 profit variance. DCG is a professional services partnership of three established consultants who specialize in helping firms in cost reduction through time-motion studies, streamlining production by optimizing physical layout, and re-engineering operations. For each project DCG consultants spent the bulk of the total project time studying customers’ operations. The three partners each received fixed salaries that represented the largest portion of operating expenses. All three used his or her home...
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