NBA5020 Course Syllabus

Tuesday & Thursday 8:40/10:10 Sage B08 Dr. Margaret B. Shackell Office: Sage 437 shackell@cornell.edu Office Hours: Wednesday 5:00-6:00 p.m. Walking the Arts Quad M-F 12:30 p.m. to 1 p.m. Twitter: @shackdow7 By appointment TAs: Dan Berkowitz (dbb33@cornell.edu) Steve Darienzo (svd22@cornell.edu) Sachin Pradhan (sg785@cornell.edu) General Aim and Objectives General Aim The general aim of NBA 5020 is to develop your ability to prepare and interpret decision-useful managerial accounting information. The course explores a mix of managerial accounting information preparation and interpretation issues. This course differs from traditional introductory courses in managerial accounting in four ways. First, the subject content is more contemporary than traditional introductory managerial accounting courses. This means there will be less emphasis on traditional accounting techniques and double-entry bookkeeping and more emphasis on modern cost management and performance measurement techniques. Second, some of the subject content is more advanced than in traditional introductory managerial accounting courses. The content will tend to be less procedural and more focused on managerial-level decision-making. Third, this course will integrate issues in managerial accounting practice directly into class discussions. This will be achieved through the class review of a significant number of cases that are mainly based on real world managerial accounting contexts. Fourth, the course will explore, at an introductory level, theories that underpin the discipline of managerial accounting. Both the textbook and lecture notes will be instrumental in introducing those theories. Specific Objectives In summary, by the end of this course I expect that you will be able to: Identify, understand and discuss the nature, purpose, and importance of different types of decision-useful managerial accounting information. Identify, understand, and apply fundamental quantitative tools and techniques used to generate decision-useful managerial accounting information. Make informed strategic and operational business decisions based on your development/evaluation of supporting managerial accounting information. Identify some underpinning theories that explain why we see what we see in cost management and performance measurement techniques and practices. 1|Page Spring 2014

Introduction Managerial accounting is concerned with the internal generation, communication, and interpretation of information for both operational and strategic decisionmaking purposes. Note that this definition and this course both focus on information internal to the firm. We will not be directly concerned here with published or external financial statements or the impact of accounting information in the broader market place. There are two important roles of managerial accounting information. First, managerial accounting has a decision- facilitating role, as it allows decision-makers within the company to adjust their beliefs, and thus affects their evaluations of and decisions surrounding the companys strategies and operations. Second, managerial accounting has a decisioninfluencing role, as it can be used to evaluate performance and align the incentives of the decision-maker with those of other stakeholders. This class will explore both the decision-facilitating and decision-influencing roles of managerial accounting. SYLLABU S CONTENTS Introduction; General Aim and Objectives. 1 Method of Instruction; Learning Resources; Study Groups; Students with Disabilities. 2 Method of Assessment; Honor Code; Important Note. 3 Testimonials; Frequently Asked Questions. 4 Course Map 5 Course Plan 6-14

Learning Resources The learning resources for NBA 5020 are: Garrison, Ray H. T., Eric W. Noreen, and Peter C. Brewer. 2012. Managerial Accounting, 14th Edition. McGraw-Hill. Course Packet for NBA 5020 Managerial Cost Accounting. NBA 5020 Spring 2014 course documents. Online readings, updated schedules, assignments, problem solutions, etc. will be posted on Blackboard http://blackboard.cornell.edu

Method of Instruction The method of instruction in NBA 5020 will be two 75-minute class sessions per week. In all, there are 27 sessions, comprising 10 conceptual discussions or mini-cases, 13 case discussions, 2 guest speakers, one introduction, and one course review session. Each conceptual discussion will include some lecture material and, typically, a demonstration problem or mini-case that applies issues raised in the lecture to a particular context. You may be required to prepare for these problems in advance of the class session. Two mini-cases are included in the coursepack. Other mini-cases and demonstration problems will be assigned at least one week in advance. Each case discussion will allow an open forum discussion of your analyses of the assigned case. Suggested questions for cases are included in this syllabus. I expect that you will come to class adequately prepared. I recommend that you prepare for each session by doing the background reading, preparing solutions to practice problems, preparing solutions to whatever exercises are assigned, and finally comparing your analysis to class discussion and suggested solutions. You should also note that the demonstration problems and mini-cases are similar in structure and degree of difficulty to questions that I have prepared for the final exam. Cases are also relevant preparation for examinations; however, the examinations will reflect much shorter scenarios. The practice problems are assigned to help you independently understand computational exercises as you prepare for each class. We will go over the approach and solutions in class and in TA sessions, but we will not spend a lot of time on this. You will need to have attempted to problems to get any value out of the time we spend on them.

I strongly encourage you to form a study group and prepare for each class meeting together with your group. These groups do not need to be the same as those for the cases. In fact, you dont need to tell me the members of the study group. An ideal group will have a diverse set of skills, and will provide an environment in which each member can contribute and learn from the others. Remember how you survived your core classes? If your study group was helpful to you before, youll likely find it helpful again now!

Students with Disabilities

Cornell University provides upon request appropriate academic accommodations for qualified students with disabilities. For more information, contact the Johnson School Registrar or Cornell Student Disability Services. http://sds.cornell.edu/

Study Groups
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Method of Assessment Your grade in the course will be determined as follows: Class Participation (incl. current events) Problem Sets (5 points X 3) Group Cases (15 points X 3) Final Examination 15% 15% 45% 25% 100%

Johnson School Honor Code:

Every Cornell student is expected to exercise integrity in all academic undertakings. By submitting work for academic credit at the Johnson School, you are affirming that the work is your own, and that you have abided by the explicit and implicit instructions regarding allowable sources of assistance. You are responsible for understanding and adhering to Cornells Code of Academic Integrity.

You are required to perform satisfactorily in all components of the assessment. The content requirement of each assessment component is presented below. I expect the final grades in this course to follow the distribution guidelines for MBA electives. Results may be curved to approximate this distribution. Class Participation (15%) Class participation is your opportunity to contribute to the learning of your classmates. Your class participation grade will be based on my assessment of how positively your classmates have benefited from your participation in the class. Useful participation includes responding to questions I may ask in class (yes, I will cold call), offering relevant comments and observations to issues raised in class, asking questions that help to clarify your classmates understanding of course topics, and helping your classmates with problems and exercises. We will be focusing on current events in Managerial/Cost accounting, and bringing a current event to the classs attention will add favorably to your grade. I will be asking for your feedback to help me assess how your classmates have contributed to your learning. Note that I may on occasion ask you to turn in an assignment. These assignments, which will be announced at least one week in advance, will be included in your class participation assessment. Problem Sets (15%) Accounting can really only be learned by doing. On three dates, you will turn in your written solutions to a set of problems. You will work individually or in a pair on this. Group Cases (45%) For three cases, you will submit typed memos via Blackboard as your group response to the case. Final Examination (25%) The final examination will be held Friday May 15th at 9 a.m.. The exam will embrace the whole of the course content. The exam will include both quantitative and discussion questions. The first section will be similar to the problem sets handed in. The second section will be similar to (although much shorter than) the cases turned in. Further details will be provided later in the semester.

This syllabus describes a tentative plan to achieve the courses objectives. Keep in mind, however, that we may have to revise the syllabus during the semester to better meet the courses objectives.

Important Note:

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Testimonials (some real, some imagined, all

youll want to say when you finish the course!)

Managerial Accounting changed my life. Before taking the class I was a real "girlie-man." But thanks to activity based costing, I've got a great new job, tons of money, women, and a new attitude. Champ Jones, MBA 2004 During my summer internship, the class that I referred to the most was Managerial Accounting. Even though my project did not start out this way, it ended up being about cost allocation in the healthcare system...My team had not realized that they were allocating premiums in a non-Shackell way! Honey Wild, MBA 2010 I will forever have nightmares about the death spiral, I think about it at work on a daily basis. You don't want the death spiral to happen to you. Danger, Danger! Tabby Demise, MBA 2011 It hurts, but youll enjoy the pain. Anonymous, MBA 2012 To all those who said, screw it, maybe we should just allocate this to miscellaneous Margaret Shackell said, No, there is a better way! Now I believe. Scott Mini, MBA 2014 Who would have ever guessed that one of my favorite courses at JGSM would include "accounting" in the title?! I likely would have not taken the course if it weren't required for my immersion, but I am so glad I did. I thoroughly enjoyed the course. The content is some of the most applicable information you will receive during business school, melding true business thought with financial implications. In the end, you'll learn, you'll laugh, you'll cry...you'll be a better person. Jack Sprat, MBA 2009 Professor, I thought of you today, because the second major project I have landed is.....tada..... activity based cost accounting! Very cool that I knew what a "cost driver" was I think that alone earned me major points. Maninthe Moon, MBA 2008 Peace, Love, and Managerial Accounting. Toy Aikmann, MBA 2017 My favorite class so far... of course not (just) because of the death spiral, ABC ... enjoyed much more with Professor S. Bess Tang, MBA 2012 Managerial Accounting is like going back to kindergarten. By the end of it, you will hate the "Peanut Butter" approach, understand that "ABC" is as simple and important as the alphabet itself, and realize that your teacher is a really "nice" person. Arnold Schwartz, MBA 2007

I attempted to test out of Managerial Accounting but Im really glad I couldnt! Managerial Accounting is an extremely relevant course for all MBAs, regardless of their immersions. Ive already seen several cost allocation issues post-Johnson and I am glad that I still have the managerial accounting mindset to spot them. Subra Yellow, MBA 2010 I was able to pay attention for almost the whole class, even when I forgot to take my A.D.D. medicine! Alice Dorn-Doer, MBA 2006 Managerial accounting is much better than Cats. I'm going to see it again and again. M. Mistoffelees, MBA 2005 Thanks to Margaret Shackell and NBA 5020, I will never look at Tapioca or Peanut Butter the same way again! Kit Builder, MBA 2010

FREQUENTLY ASKED QUESTIONS AND ANSWERS Q: Can I take a makeup exam? A: Makeup exam times will be available for the final exam (email or see me if you think you need to arrange this). Q: Can I prepare for class assignments working with classmates? A: I have no objection to you working in groups to discuss any or all of the assigned topics prior to class. Q: What should I do if I have a dispute over the grading of my work? A: Please dont hesitate to send/give me a written description of your claim and I will happily re-grade the work. Please note though that once you submit a request for re-grade, the WHOLE piece of assessment will be re-graded, so that your overall grade could change up or down. Q: Are group peer evaluations compulsory? A: No. A group member will complete a peer evaluation form only if that member feels the effort in compiling the case was not equal among the members. I will then adjust grades according to the group members peer evaluation form and any substantive evidence of non-equal allocation of work effort.

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Course Map
The Basics: Information for Decision-Making Internal Accounting Choices and DecisionMaking 1 Cost Accounting Framework & Simple Cost Systems 9-10 Organizational Architecture Organizational Architecture Decentralization & Transfer Pricing 15

Wrap-Up Control System Tightness Management control in Nonprofit Organizations Review and Synthesis 25

Introduction: What is managerial accounting and why is it important? Speaking the language: Cost concepts

Identifying and analyzing relevant information for decision-making Guest Speaker. In person case analysis. Relevant information & analysis continued

Basic analytic techniques: CVP

Refinements: Multiple Cost Pools Refinements: Activity Based Costing Guest Speaker. Real life ABC. Refinements: Customer Profit, Excess Capacity, and Time based ABC

11

16

26

12

4-6

13

Comparing Profit to the Plan (Variance Analysis) Financial Measures Other Than Profit Non-financial Measures and Subjectivity

Performance-Based Pay

17

27

18-20

14

21-22

23-24

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Course Plan NOTES: Text chapters are intended to be used as reference tools. Primary chapters are directly applicable to class topical coverage. Supplemental chapters will be useful for students wishing to gain a more in-depth or technical mastery of the topics. Please note that supplemental chapters are listed with the general topic to which they apply rather than with any specific class. This plan provides a minimal list of practice problems. These will typically not be discussed in class. There are many practice problems at the end of each chapter, and I suggest that you take advantage of these to become comfortable with the analytical tools and techniques discussed in the chapter. If you want more practice problems, just ask.

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General Topic: Information for Decision-Making Supplemental Text Chapters for this topic: Appendix A and Appendix B Session 1 Thursday, January 23: Introduction Text Chapter: 1 Session 2 Tuesday, January 28: Basic Costing Concepts Text Chapter: 2 Practice Problems: Problem 2-23, Problem 2-24, Case 2-25, and Case 2-26 Session 3 Thursday, January 30: Relevance / CVP / Bill French Mini-Case Text Chapter: 5 Case: Bill French, Accountant. ( HBS 9-104-039) Practice Problems: Problem 5-20, Problem 5-22, Problem 5-30 Suggested Case Questions: See assignments embedded in the case. Session 4 Tuesday, February 4: Cost Analysis and Cost Behavior Text Chapter: 12 Case: Reichard Maschinen, GmbH (From Shank, J.K., Cases in Cost Management: A Strategic Emphasis, 3rd Edition.) Practice Problems: Problem 12-18, Problem 12-19, Problem 12-21, Problem 1222, Problem 12-27 (these are for the Session 4-8 segment, not just for today). Suggested Case Questions: 1. Which product is more profitable, the steel rings or the plastic rings? (Be prepared to show the calculations that support your answer.) 2. What actions do you recommend to Mr. Kurtz regarding: a. Manufacture of plastic rings b. Further manufacture of steel rings c. Pricing of steel and plastic rings d. Availability of steel and plastic rings over the next 1 to 2 years e. Longer-run availability and pricing of steel and plastic rings 3. Assess the likely impact of your recommendations, both quantitatively and qualitatively. Session 5 Thursday February 6: Constraints and Relevant Costs Case Writeup Due: Tashtego (From Shank, J.K., Cases in Cost Management: A Strategic Emphasis, 3rd.) Suggested Case Questions: Case instructions will be handed out and on Blackboard.

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Session 6 Tuesday, February 11(No SSO students): Special Order Case: FinePrint Company ((Abridged) UV1772) Suggested Case Questions: 1. Consider the special order from Abbie Jenkins. a. FinePrint currently is operating at around full capacity: 150,000 brochures. Should Johnson accept the special order? b. Assume that monthly printing capacity is 200,000 brochures, current monthly production is 150,000 brochures, and operating costs at the 150,000 level are as presented in case Exhibit 1. Also assume that this order would not affect any of FinePrints current business with its regular customers. Should Johnson accept the special order? 2. Consider the outsourcing opportunity from Ernest Bradley of SmallPrint Shop. Should FinePrint outsource 30,000 brochures to SmallPrint? Session 7 Thursday, February 13: Non-routine Decision Making Guest Speaker, Bonnie Croskey PaveDrain NY Tuesday, February 18th Cornell Break no Class Session 8 Thursday, February 20 (No SGE students): Add a Segment Case: Either The Business of Battlefield (Unpublished Nick Fessler) or: The Horizon Insurance Agency (UV0021) (TBA) Handed in problem set due. Suggested Case Questions: See questions on blackboard.

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General Topic: Internal Accounting Choices & Decision-Making Supplemental Text Chapters for this topic: 4, 6 Session 9 Tuesday, February 25: A Cost Accounting Framework Text Chapter: 3 Practice Problems: Exercise 3-1, Exercise 3-2, Exercise 3-3, Exercise 3-7 Session 10 Thursday, February 27: Simple Cost System Case: Purdy Call Centers, Inc. (A). Readings: Hilsenrath, Jon E. 2004. Adventures in Cost Cutting, The Wall Street Journal, May 10, 2004, R1, Column 1 +. Altman, V., M. Kaplan, and A. Corbett. Turning Cost Cutting into a Core Competency. Harvard Article U0212B. Suggested Case Questions: Hint 1: A burden rate is simply the rate at which indirect costs are charged to cost objects (POR). Hint 2: Dont be concerned if the numbers dont foot perfectly. There are some minor rounding errors in this case. Hint 3: You may assume that the budgeted numbers from prior years are actuals. 1. What are the burden rates for the years 2000 to 2003? 2. What are the reported costs for the firms customers in the years 2000 to 2003? 3. What are the reported profits for the firms customers in the years 2000 to 2003? 4. What are the possible explanations for the increase in costs across the last two years? 5. How would you bid on the contracts that are coming up for renewal? 6. How would you bid on new business? Session 11 Tuesday, March 4 Case: Seligram, Inc.: Electronic Testing Operations. ( HBS 9-189-084.) Practice Problems: Exercise 3-15 Suggested Case Questions: 1. What caused the existing cost system at ETO to fail? 2. Calculate the reported costs of the five components described in a. The existing system. b. The system proposed by the accounting manager. c. The system proposed by the consultant. 3. Which system is preferable? Why? 4. Would you recommend any changes to the system you prefer? Why? 5. Would you treat the new machine as a separate cost center or as part of the main test room?
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Session 12 Thursday, March 6: Introduction to Activity Based Costing (ABC) Text Chapter: 7 Case Writeup Due: Classic Pen Company: Developing an ABC Model. (HBS 9198-117.) Readings: Cooper, R. and R. S. Kaplan. 2000. Measure Costs Right: Make the Right Decisions. HBR Onpoint Article. Product #357X. Practice Problems: Exercise 7-15, Problem 7-18, Problem 7-20 Suggested Case Questions: Case instructions will be handed out and on Blackboard. Session 13 Tuesday, March 11: Activity Based Costing in Practice Guest Speaker, Allen Sheldon, IBM Global Business Services Session 14 Thursday, March 13: Time based ABC and ABC Refinements Customer Profit & Excess Capacity (no SSO students) Text Chapter: 7 Appendices Readings: [Supplemental Reading] Merchant, K.A., and M.D. Shields. 1993. Commentary on When and Why to Measures Costs Less Accurately to Improve Decision Making, Accounting Horizons 7(2): 76-81. Kaplan, R.S. 2006. Activity-Based Costing and Capacity. HBS 9-105-059. Practice Problems: Exercise 7A-1, Case 7B-5 Handed in problem set due.

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General Topic: Organizational Architecture Supplemental Text Chapters for this topic: 9 Session 15 Tuesday, March 18: Introduction to Organizational Architecture Readings: Zimmerman, J.L. Accounting for Decision Making and Control. Seventh Edition. Chapter 4. Practice Problems: P4-4, P4-9, P4-11, P4-14 Session 16 Thursday, March 20: Decentralization & Transfer Pricing Text Chapter: 11 (472-482), Appendices 11A and 11B Practice Problems: Problem 11-14, Exercise 11A-3, Exercise 11B-2 Session 17 Tuesday, March 25: Pay for Performance Case: Performance Pay at Safelite Auto Glass (A). ( HBS 9-800-291.) Suggested Case Questions: 1. Why was the productivity of the Safelite installers so low? 2. Does the proposed PPP plan address the problems described in question 1? Does it introduce new problems? Explain. 3. What are the pros and cons of switching from wage rates to piece rate pay? Are Safelite installers good candidates for piece-rate pay? Why or why not? 4. Should there be a guaranteed wage? If so, how should it be set? 5. What are the likely consequences of a switch from wage to piece rates for: a. Turnover b. Recruitment c. Productivity d. Product Quality Session 18 Thursday, March 27: Introduction to Variance Analysis Text Chapter: 10 Practice Problems: Problem 10-11, Problem 10-16

SPRING BREAK

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Session 19 Tuesday, April 8: More Variance Analysis. Crunching numbers. Session 20 Thursday, April 10: Variance Analysis Text Chapter: 8 Case: Berkshire Toy Company (Crawford, D., and E. G. Henry. 2000. Budgeting and Performance Evaluation at the Berkshire Toy Company. Issues in Accounting Education 15(2): pg. 283-294.) Suggested Case Questions: See assignments embedded in the case. Session 21 Tuesday, April 15 (No SSO or Marketing students): Introduction to Financial Performance Measures Other than Profit Text Chapter: 9 Practice Problems: Exercise 9-19, Problem 9-23 Session 22 Thursday, April 17 (No SSO or Marketing students): More Performance Measurement Case Writeup Due: Vyaderm Pharmaceuticals (HBS 9-101-019) Readings: McIntyre, Edward V. 1999. Accounting Choices and EVA Business Horizons (January-February):66-72. Suggested Case Questions: Case instructions will be handed out and on Blackboard. Session 23 Tuesday, April 22: Introduction to Non-Financial Measures & Subjectivity Text Chapter: 11(482-492) Readings: Kaplan, R.S. and D.P. Norton. 1992. The Balanced Scorecard Measures that Drive Performance HBR Onpoint Article. Product #4096. [Supplemental Reading] Kaplan, R.S. and D.P, Norton. Using the Balanced Scorecard as a Strategic Management System. Harvard Article R0707M. [Supplemental Reading] Kaplan, R.S. and D.P, Norton. Strategy Maps. Harvard Chapter 1575BC. [Supplemental Reading] Kaplan, R.S. The Balanced Scorecard for Public-Sector Organizations. Harvard Article B9911C. [Supplemental Reading] Bruce, Robert. 2004. Non-financial Measures Just Dont Add Up. Financial Times, March 29, 2004, pg. 5. Practice Problems: Problem 11-17, Problem 11-19, Problem 11-22.

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Session 24 Thursday, April 24: Non-Financial Performance Measurement Case: Store24 (HBS 9-103-058.) Suggested Case Questions: 1. Why do companies measure and analyze non-financial performance metrics? In what environments is this measurement especially beneficial? 2. What is the aim of the Balanced Scorecard? What are the pros and cons of this approach? 3. Critique Store24s Balanced Scorecard. If you want to use the scorecard to test the effectiveness of the Ban Boredom strategy, what other variables would you include in the analysis? 4. Is the Ban Boredom strategy related to future financial performance? (Bob Gordon is more swayed by data analysis than by qualitative opinions.) 5. What would you recommend to Bob Gordon? Handed in problem set due.

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General Topic: Wrap-Up Session 25 Tuesday, April 29: Control System Tightness Case: The Lincoln Electric Company, (HBS 9-376-028) Readings: Merchant, K. A. and W. A. Van der Stede. Management Control Systems. Chapter 4: Control Systems Tightness. Second Edition. Suggested Case Questions: 1. How would you describe Lincolns approach to the organization and motivation of their employees? 2. What role do you think this approach has played in Lincolns performance over the last 25 years? 3. What is the applicability of Lincolns approach to motivation to other companies and situations? Why do not more companies operate like Lincoln? 4. Would you like to work in an environment like that at Lincoln Electric? 5. What is your 25-year prediction for Lincoln? Session 26 Thursday, May 1: Management Control in Nonprofit Organizations Case: Waikerie Co-Operative Producers Ltd. Readings: Merchant, K. A. and W. A. Van der Stede. Management Control Systems. Chapter 17: Management Control in Nonprofit Organizations. Second Edition. Suggested Case Questions: 1. In what ways is management control in a co-cooperative like Waikerie different from that in a typical corporation? 2. Evaluate Waikeries management control system. What suggestions would you make to Waikeries managers, if any? Session 27 Tuesday, May 6: Course Review Readings: [Supplemental Reading] Simons, R. 1995. Control in an Age of Empowerment HBR Onpoint Article. Product #306X. [Supplemental Reading] Kaplan, R.S. 2001. Integrating Shareholder Value and Activity-Based Costing with the Balanced Scorecard. Harvard Business School Publishing, The Balanced Scorecard Collaborative, Article Reprint # B0101C. Final Exam, May 15th 9 a.m.

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