Exam 1: Cost Management and Strategic Decision Making Evaluating Opportunities and Leading Change

Benefit-cost analysis takes into account only quantitative benefits and costs of proposed plans.

Streamline Shoe Company, a manufacturer of women's shoes, recently implemented a quality improvement program aimed at streamlining the manufacturing process. Carl Silverman, an industrial engineer and a resident expert on process improvement, was assigned the task of implementing the program. Silverman's first task was to educate all the employees involved with the production process. He sent a memo to representatives in product design and development, materials management (including purchasing), marketing, distribution, customer service and accounting, in addition to those in the production department, inviting them to attend an information session on the improvement program. He began the meeting by thanking all those who were present (over 35 in number) and spent the first hour explaining the need for such a program. Soon after, the attendees were engaged in a discussion. Several questions were raised during the discussion. Among these, three questions stood out. What is the need for including members from design, marketing, and other functional areas when the improvement program's focus is on streamlining the manufacturing process? What is the role of the cost management expert in this program? Finally, why should the machine operators be involved, as they are not engineers? Required: Consider the three questions that stood out in the discussion. Assume the role of Carl Silverman and prepare a response addressing the questions.

Quantitative information is expressed in dollars or other quantities relating to size or frequency.

Which one of the following is not a characteristic of cost management?

Which of the following would be found in a low risk, low reward strategic mission?

A company with a "hold" Strategy as its strategic mission would focus on:

A cost-management system is the set of cost-management techniques that function together to support the organization's goals and activities.

Linden also noted that Salary Experts quoted a fixed fee of $125,000 and variable processing costs of $7.50 per employee transaction. She did not believe that the company will actually save money by outsourcing the payroll function. For one, she did not think that the company will actually save all of the above mentioned amounts. She knew that the payroll department manager could not be removed from the company because he had to oversee the payroll function and serve as a liaison with the outside company. However, all other employees in the department would likely not be required. Required: (a) Assume Educational Toys has 14,000 employees on its payroll. Can the company save money by outsourcing the payroll function? (b) What are the pros and cons of outsourcing the payroll function? Anika Linden, the Vice-President for Human Resources in Educational Toys, Inc. was concerned about a recent memo she had recently received from the CEO's office regarding the possibility of outsourcing the payroll function to Salary Experts, a growing provider of a variety of human resource services. She was shocked that the CEO's office had discussed this matter with the Board of Directors, but failed to consult her. Linden was preparing for a meeting with the CEO. In reading the memo and its attachments, Linden observed the following comparison of costs in a report prepared by the controller's office:

Variances are the differences between a plan's actual and expected quantities.

Consider the following management activities: ● Choose the organization's long-term strategy ● Plan and organize the use of resources into efficient operations ● Implement plans and organizational change ● Measure and report results ● Define the organization's scale and scope of operations Required: (a) Identify the sequence in which the decisions must be carried out. Why is it important to carry out these activities sequentially? (b) How can an effective cost management system support the above activities?

The first level of evaluating plans and outcomes is strategic performance analysis.

Cost management is a philosophy, an attitude, and a set of techniques aimed at generating the most revenues possible in a corporation. ACIPA BB: Industry

Use the following to answer questions: Perry's Sandwich Department had the following summarized results for the month ending April 30: -As the cost accountant, which single note to the above financial results is most appropriate in the report to management?

Variance analysis will be primarily used in the quantitative aspect of performance evaluation.

Qualitative information is descriptive and based on characteristics or perceptions, such as relative desirability, rather than quantities.

The value chain is a set of activities within an organization beginning with the purchase of materials and ending with the completion of a finished product.

Cost managers almost always have training as accountants.

The Cut Stop is a small but prosperous hair cutting salon. Kathy Harvey, the manager of the salon, has been asked by several clients if she will ever offer other "hair related" services (e.g., perm, dye, etc). After careful thought, Harvey is considering expanding her offerings. However, in order to do so, she will have to hire one additional stylist at a salary of $26,000 per year. Other expenses will increase as follows: rent by 20%, supplies and utilities by 25%, and miscellaneous expenses by 10%. Her revenues from additional services are likely to be $55,000 for the next year (i.e., 2007). The Cut Stop's income statement for the most recent year is presented below. Required: (a) Based on your financial analysis, should Kathy Harvey go ahead with the expansion? (b) What other factors must Harvey consider before making a final decision?

Use the following to answer questions: In the Management's Discussion and Analysis section of its 2005 annual report, the CEO of McDonald's Corporation discussed the strategic direction and financial performance of the company by referring to the comprehensive revitalization plan initiated by the company in 2003: "in 2003, the Company initiated a comprehensive revitalization plan focused on maximizing customer satisfaction and strengthening our financial position. We redefined our strategy to emphasize growth through adding more customers to existing restaurants and aligned the System around our customer- focused Plan to Win. We streamlined processes such as new product development and restaurant operations, improved our training programs, and implemented performance measures, including a restaurant review and measurement process, to enable and motivate franchisees and restaurant employees to serve customers better." Among the improvements cited were: (1) Improving the taste of many of the core offerings (2) Streamlining processes such as new product development and restaurant operations (3) Implemented performance measures to enable and motivate franchises to service customers better (4) Achieved high levels of customer awareness worldwide During 2005, McDonald's comparable sales increased 3.9%, earnings per share increased from $1.79 to $2.04, cash from operations increased $433 million to $4.3 billion and the company repurchased $1.2billion in common stock. (McDonald's 2005 Annual Report) -McDonald's strategic mission could best be described as:

Match the following operations with appropriate elements of an organization's value chain. Value Chain Element -Creation of new movie ideas at Paramount Pictures