Chapter 14 Operational Performance Measurement: Sales and Direct-Cost Variances, and the Role of Nonfinancial Performance Measures

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Chapter 14
Operational Performance Measurement: Sales and Direct-Cost Variances, and the Role of Nonfinancial Performance Measures

Case

14-1: Pet Groom and Clean Company

Readings

14-1: “Standard Costing Is Alive and Well at Parker Brass” by D. Johnsen and P. Sopariwala, Management Accounting Quarterly (Winter 2000), pp. 12-20.

The Brass Products Division of the Parker Hannifin Corporation is a world-class manufacturer of tube and brass fittings, valves, hose, and hose fittings. Despite the introduction of popular new costing systems, the Brass Product Division operates a well-functioning standard costing system.

Discussion Questions:

1.What features in the firm's standard costing that make it a success? 2.In addition to variances seen in the textbook Parker Brass created several new variances. Describe these variances. Why are these variance added at Parker Brass?

14-2: “Redesigning Cost Systems: Is Standard Costing Obsolete?” by Carole B. Cheatham and Leo B. Cheatham, Accounting Horizons (December 1996), pp. 23-31.

The article shows some new ways to analyze standard cost data, going beyond the traditional emphasis on production costs variances that focus on price and efficiency. Variances for product quality are developed and explained, as well as sales variances based on sales orders received and orders actually shipped. There is also a discussion of how to incorporate activity-based costing, and continuous standard improvement, including benchmarking and target costing.

The main premise of the article is that standard cost systems are the most common cost systems in use, and while there are a number of limitations to these systems, a careful and creative effort can transform them into more useful cost systems.

Discussion Questions:

1.What are the main criticisms of traditional standard cost systems? 2.What is meant by “push through” production? Is it preferred to “pull through” production, and why? 3.What are the best ways to make standard cost systems more dynamic? 4.Considering the suggestions make in this article, in contrast to the chapter presentation of standard costing, which ideas make the most sense to you and why?

14-3: Can Variance Analysis Make Media Marketing Managers More Accountable? by Ted Mitchell and Mike Thomas, Management Accounting Quarterly (Fall 2005), pp. 51-61.

This article discusses, within the context of a marketing application, an alternative method for decomposing a total standard cost variance. The authors posit that in such applications the joint variance (that in conventional practice is assumed to be small) can be significant in amount and therefore invalidate conventional methods that include the joint price-cost variance as part of the price variance. However, the treatment proposed by the authors for the joint price-quantity variance differs from the “three-variance” solution found in some cost/managerial accounting texts.

Discussion Questions:

1.Explain what is meant by the term “joint variance” as this term is used in standard cost systems used for control purposes. 2. Explain what the authors of this article mean when they describe their proposed approach for standard cost variance decomposition as a “geometric solution.” 3.Explain the term “Minimum Potential Performance Budget” model. How is this concept employed in the variance decomposition process recommended by the authors? 4.What are the primary advantages and primary disadvantages of the variance decomposition model recommended by the authors of this paper?

14-4: Helping Students See the ‘Big Picture of Variance Analysis by Neal VanZante, Management Accounting Quarterly, Vol. 8, No. 3 (Spring 2007), pp. 39-47.

This paper presents two examples that can be used to reinforce concepts and procedures students learn in text Chapters 14 through 16. The first example, Fernandez Company, can be used as a comprehensive review of all three...
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