Insteel Industries decided to implement ABM at the Andrews, South Carolina, plant. The ABM team analysed operations and identified 12 business processes involving a total of 146 activities. The ABM study revealed that the 20 most expensive activities accounted for 87 per cent of Andrew’s total physical and people resource of $21.4 million. Activities were further classified into value added and non-value added. Nearly $4.9 million was spent on non-value-added activities such as reactive maintenance, dealing with scrap, moving materials, reworking products and managing customer complaints. Those activities, within the 20 most expensive, were targeted for cost reduction and process improvement. The company estimates that within a year of the first ABM study, $1.8 million had been saved in quality costs, mainly through a reduction of scrap and reactive maintenance costs. Freight costs were reduced $555 000 in a year in the Andrews plant alone. Non-value-added activities were reduced from 22 per cent of activity costs to 17 per cent. The ABM study prompted In steel to start tracking freight cost per pound shipped. This directed attention to ways in which these costs could be reduced. By changing the layout of boxes within each truck, the Andrews plant was able to ship 7400 pounds more per truckload. This represented a 20 per cent reduction in freight expense. When Insteel realized how much they were actually incurring in quality costs, the team probed more deeply into understanding better what was causing the quality costs to be incurred and for suggesting steps to reduce them. Insteel realized that certain foreign suppliers of rods were lower in price but supplied poorer quality rods that caused breakdowns in Insteel’s manufacturing process. The lower price of those suppliers did not compensate for the quality costs. Insteel switched to higher quality rod suppliers. Insteel also realized that smaller diameter wire products were more likely to break and disrupt the manufacturing process. Insteel migrated its product mix to more large diameter wire products. Such initiatives led to reduction in quality costs from $6.7 million to $4.9 million in the following year. It is hard to estimate how much of these savings would have been realized had Insteel not conducted an ABM analysis. The activity analysis gave it an appreciation of the scope and quantified the magnitude of the improvement potential, thereby allowing it to prioritize among various process improvement possibilities. Clearly ABM served as a focusing device by providing cost data by activities, directing attention to the top 20 activities, and by labelling some of them as non-value-added activities. How might activity costs for Insteel differ from departmental costs?
> This is an extract from Ducker, H., Head, A., McDonnell, B., O’Brien, R. and Richardson, S. (1998), A Creative Approach to Management Accounting: Case Studies in Management Accounting and Control, Sheffield Hallam University Press, ISBN
> This case study is taken from Ducker, J., Head, A., McDonnell, B., O'Brien, R. and Richardson, S. (1998), A Creative Approach to Management Accounting: Case Studies in Management Accounting and Control, Sheffield Hallam University Press, ISBN 086339 791
> Southern Paper Inc. is a global packaging company headquartered in the United States. The company was founded in the 1880s and has three principal business sectors – forest products, packaging and papers. The forest products division supplies lumber to t
> This case study is taken from Ducker, J., Head, A., McDonnell, B., O'Brien, R. and Richardson, S. (1998), A Creative Approach to Management Accounting: Case Studies in Management Accounting and Control, Sheffield Hallam University Press, ISBN 086339 791
> This case was originally set in the 1960s in rural Vermont. The Majestic Lodge is an old but well-maintained property that has changed ownership several times over the years. It has no restaurant or bar. It is positioned as a mid-price, good quality "des
> The Managing Director of the Kiddy Toy Company (KTC) needs to decide whether a special export order should be accepted or rejected, with reasons provided, for the manufacture of Panda bears. The background Official statistics indicate that China manufact
> Professor Anthony Atkinson, (University of Waterloo) and adapted by Professor John Shank (The Amos Tuck School of Business Administration Dartmouth College) This case is reprinted from Cases in Cost Management, Shank, J. K., 1996, South Western Publishin
> Anjo Ltd was established in 1986 by two brothers, Andrew and Jonathan Bright. They saw a market for providing accessories in the home to accommodate the new era of home entertainment, such as television cabinets, record stands, hi-fi cabinets, tape casse
> Permission to reprint this case has been granted by Captus Press Inc. and the Accounting Education Resource Centre of the University of Lethbridge. Foster’s Construction Ltd: Organizational Background Fosters Construction Ltd (FCL) is a privately owned c
> Airport Complex was founded in Northern Europe in the early 1960s, and at the time it primarily served as a domestic airport. During the 1980s, flights to foreign destinations became an ever more vital activity for the airport. Today, the airport functio
> Hardhat Ltd’s Budget Committee, which has members drawn from all the major functions in the business, is meeting to consider the projected income statement for 2018/2019, which is composed of the ten months’ actuals to
> The Application of Linear Programming to Management Accounting Midland Airport Ltd LEARNING OBJECTIVES: After reading this case study and completing the questions you will be able to: • Formulate the initial linear programming model (ob
> Fleet operates a chain of high street retail outlets selling clothing and household items. In 1995 this company was heading for a financial loss and was deemed to have lost strategic direction. The business formula that had proved successful in the 1980s
> This case study is taken from Ducker, J., Head, A., McDonnell, B., O'Brien, R. and Richardson, S. (1998), A Creative Approach to Management Accounting: Case Studies in Management Accounting and Control, Sheffield Hallam University Press, ISBN 086339 791
> In November 2012, a consultant was employed to review and document the planning and control systems of Integrated Technology Services (UK) Ltd (ITS-UK), to ensure that these were effectively meeting the needs of the business and to provide a basis for st
> This case was originally set in a specialty manufacturer of industrial measuring instruments in Scotland in 1979. The topic is profit variance analysis. THE FIRM Kinkead has been a leading UK firm since World War II in specialty instruments for measuring
> Company A is in the chemical industry and a manufacturer of industrial paints. At one of its manufacturing sites (site 1) a new system of costing and management information is being considered to replace a traditional system, which was not meeting fully
> The Board of Dumbellow Ltd are meeting on the 23rd January to discuss the draft budget for 2018/19, some two months before the start of that year. The company produces three industrial valves which are incorporated into equipment used in the Oil and Gas
> Learning objectives: After reading this case study and completing the questions you will be able to: • Demonstrate familiarity with two methods of process costing: weighted average and FIFO. • Discuss the treatment of normal loss, abnormal loss and abnor
> The case was prepared as the basis for discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Danfoss Drives A/S is a Danish producer of frequency converters located in Graasten in the southern part
> Company B is a manufacturer of large, complex electrical motors. It has been making them 'to order', in order quantities of, typically, one-four in a jobbing/batch production system for many years. A typical selling price may range from £3000-£20 000 per
> Learning objectives: After reading this case study and completing the questions you will be able to: • Explain the alternative methods of allocating joint costs to products. • Discuss the arguments for and against each
> Mestral is a highly successful company manufacturing a range of quality bathroom fittings. For the past 15 years production has been carried out at three locations: Northern town in the North East of England; at Western town on the Severn estuary; and at
> Kaminsky Ltd manufactures belts and braces. The firm is organized into five departments. These are belt-making, braces-making and three service departments (maintenance, warehousing and administration). Direct costs are accumulated for each department. F
> (a). Flopro plc makes and sells two products A and B, each of which passes through the same automated production operations. The following estimated information is available for period 1: (ii). Production/sales of products A and B are 120 000 units and
> Galuppi plc is considering whether to scrap some highly specialized old plant or to refurbish it for the production of drive mechanisms, sales of which will last for only three years. Scrapping the plant will yield £25 000 immediately, where
> Franzl is a contract engineer working for a division of a large construction company. He is responsible for the negotiation of contract prices and the subsequent collection of instalment monies from customers. It is company policy to achieve a mark-up of
> Paragon Products plc has a factory that manufactures a wide range of plastic household utensils. One of these is a plastic brush that is made from a special raw material used only for this purpose. The brush is moulded on a purpose-built machine that was
> Losrock Housing Association is considering the implementation of a refurbishment programme on one of its housing estates which would reduce maintenance and heating costs and enable a rent increase to be made. Relevant data are as follows: (i). Number of
> Using the discounted cash flow yield (internal rate of return) for evaluating investment opportunities has the basic weakness that it does not give attention to the amount of the capital investment, in that a return of 20 per cent on an investment of &Ac
> The Portsmere Hospital operates its own laundry. Last year the laundry processed 120 000 kilograms of washing and this year the total is forecast to grow to 132 000 kilograms. This growth in laundry processed is forecast to continue at the same percentag
> You are employed as the assistant accountant in your company and you are currently working on an appraisal of a project to purchase a new machine. The machine will cost £55 000 and will have a useful life of three years. You have already est
> Your company is considering investing in its own transport fleet. The present position is that carriage is contracted to an outside organization. The life of the transport fleet would be five years, after which time the vehicles would have to be disposed
> Garrett Automative Ltd (GAL) is a UK subsidiary of a American parent company that manufactures turbochargers for the automative industry. GAL decided to begin its profit improvement programme by examining its factory throughput. Throughput was defined as
> The following information relates to three possible capital expenditure projects. Because of capital rationing only one project can be accepted: The company estimates its cost of capital is 18 per cent. Calculate: (a). The payback period for each proje
> Short flower Ltd currently publish, print and distribute a range of catalogues and instruction manuals. The management has now decided to discontinue printing and distribution and concentrate solely on publishing. Long plant Ltd will print and distribute
> Cassidy Computers plc sells one of its products, a plug-in card for personal computer systems, in both the UK and Ruritania. The relationship between price and demand is different in the two markets, and can be represented as follows: Home market: Price
> Butterfield Ltd manufactures a single brand of dog food called ‘Lots O Grissle’ (LOG). Sales have stabilized for several years at a level of £20 million per annum at current prices. This level is not expected to change in the foreseeable future (except a
> Safety or buffer stocks are held for many reasons. For example, road authorities might want to hold sufficient stock of grit salt in case of bad weather, or firms might build stock of key materials if a price rise is impending. In recent times climate c
> The Boeing 737 jet is the world’s most popular and reliable commercial airliner. The company has manufactured over 8000 jets in the 737 family. In 2005, the 737-900ER was launched, which can carry more passengers over a further range than any previous mo
> Modern day aircraft are complex pieces of engineering, increasingly using more technology, composite materials and more efficient engines. Aircraft engines are in particular improving not only in fuel efficiency, but also in range, thus contributing to l
> South African energy and chemicals company Sasol, like many companies dealing with large-scale projects, needs to prepare cost estimates. Sasol specialize in high value liquid fuels, chemicals and low-carbon electricity. In 2014, the company decided to i
> In the March 2012 edition of CIMA’s Financial Management journal, Christian Doherty asks what will management accountants ten years on be grappling with? This question has been posed before (see, for example, Scapings et al., 2003) and technology is a fa
> According to a US Congressional enquiry, this accident apparently partly resulted from local decisions within the oil multinational BP and its contractors to save relatively immaterial costs by cutting corners in oil exploration safety measures (National
> As one of the pioneers in the low-cost airline market, easyJet’s business model includes some core values: ● Safety – Our number one value, sitting at the core of everything we do. ● Pioneering – We challenge to find new ways to make travel easy and affo
> Taylor, Woods and Cheng Ge Fang (2014) reported on how one UK company moved its target costing system away from profit targets and focused it on product-level economic value added (EVA(TM)) targets. The company, which used the pseudonym Electronics for c
> Management accounting combines accounting, finance and management with the leading-edge techniques needed to drive successful businesses. Chartered management accountants: ● Advise managers about the financial implications of projects. ● Explain the fina
> Following events of September 2001, airport security screening in the US and globally increased dramatically. As we all know, this led to increasing queues at airports which while inconvenient, are paramount to the safety and security of passengers. Sin
> As a result of the recent financial troubles at Tesco its shares declined to an 11-year low in 2014. Terry Smith, chief executive of investment house Fundsmith, stated in an article published in The Financial Times that investors had long ignored warning
> An article by Chen et al. (2015) published in Strategic Finance described how Zhongyuan Special Steel Co. (ZYSCO), a typical Chinese state-owned company, introduced a new strategic management system that would integrate its value creation strategy into e
> Southwest Airlines set ‘operating efficiency’ as its strategic theme. The four perspectives embodied in the balanced scorecard were linked together by a series of relatively simple questions and answers: Financial: Wha
> The Globe and Mail (Canada) quotes an article written by Professor Pietro Micheli in Industry Week in which he listed seven myths about performance management that promote the wrong behaviours. The following is a summary of these myths: Myth 1: Numbers
> Across Europe, just how much – or little – US multinational firms are paying in taxes is coming under intense scrutiny according to an article published in the Washington Post. Most of the investigations revolve around the issue of ‘transfer pricing’, wh
> According to an article in the Financial Times the UK tax authority (HMRC – HM Revenue & Customs) raised £1.1bn from challenging the pricing of multinational companies’ internal deals in 2013–14 – more than twice as much as in the previous year. The incr
> Medical devices are normally associated with use by hospitals and medical practices. Some devices are used by normal consumers and, according to an article on the Medical Device and Diagnostic Industry website (www.mddionline.com), are proliferating. The
> Teva Pharmaceutical Industries Ltd reorganized its pharmaceutical operations into decentralized cost and profit centres. Teva proposed a transfer pricing system based on marginal costs. But the proposed transfer pricing system generated a storm of contro
> The financial mission of a company should be to invest and create cash flows in excess of the cost of capital. If an investment is announced that is expected to earn in excess of the cost of capital, then the value of the firm will immediately rise by th
> From Real World View 19.1, you know that Siemens operates in many countries and has quite a diverse product offering. With such complex and broad operations, there are many factors that can affect the performance of a business sector or division. In its
> German global company Siemens AG had a turnover of almost €76 billion in 2015, recording a profit after taxes of €7.4 billion, according to its annual report. The company operates globally, with 351 000 employees globally. Siemens is a diverse organizati
> A distinguishing feature of today’s digital technology is that it is characterized by zero (or near-zero) marginal costs. Once you’ve made the investment needed to create a digital good, it costs next to nothing to roll out and distribute millions of cop
> In a BBC documentary called Power to the People, Michael Portillo visited a ‘You Decide’ session organized by the local council in Tower Hamlets, London. At this session, local people decide what is to be done with £250 000 of council money. They are giv
> Meditech South Africa (Pty) Ltd provides software solutions to meet the information needs of healthcare organizations in Africa and the Middle East. According to their website, the software can encompass all areas of healthcare from doctor’s offices to h
> Setting standards in an organization may be primarily to assist in the calculation of a standard cost for the product or service for management accounting purposes. Standards are also relevant for operational and customer service managers as they may aff
> Recipes are used in the manufacturing processes of many sectors. In the paper industry, a starch recipe consisting of borax, caustic soda, starch (from maize or potatoes) and hot water is used to glue corrugated board (cardboard) together. This process i
> Once standard costs have been established and used by a business, they should be updated on a regular basis. Actual costs are frequently used as a basis for any updates. SAP, a leading enterprise resource planning (ERP) system, provides tools and data wi
> The internet of things (IoT) refers to an ever-growing network of physical objects which are connected to the internet. This includes household devices and many business and industrial applications. The IoT has given way to a vast array of new products a
> Because of the previous lack of effective control of expenditure by the Han Dan Company, a system of responsibility accounting and standard costing was introduced. The basic principles underlying the responsibility cost control system included: (1). set
> Government crime-fighting targets are a shambles and should be scrapped, claims Chief Superintendent, Ian Johnston. Mr Johnston was speaking ahead of the Police Superintendents’ Association’s annual conference, when he asked the police minister to scrap
> The British government has pledged to spend 0.7 per cent of national aid resulting in £12 billion being allocated to the Department for International Development’s (DfID’s) aid budget despite the fact that the Independent Commission on Aid Impact publish
> The globe is facing an increase in water demand resulting in the need for additional agricultural land and irrigation water. Elyamany and El-Nashar (2013) provided an illustration of a financial appraisal of four alternative methods of water irrigation i
> Although the apex of ZBB’s popularity in the late 1970s is long past, there has been renewed interest in ZBB in today’s environment of fiscal constraint, says Shayne Kavanagh in an article published in Public Finance. He cites a recent Government Finance
> Big data is a term that describes the large volume of raw data, both structured and unstructured, that inundates a business on a daily basis. It includes information such as email messages, social media postings, phone calls, purchase transactions, websi
> Revisions to China’s budget law, passed on 31 August 2014, represent a significant reform, providing a framework for significantly greater transparency and accountability for local government says Fitch Ratings. Fitch expects that these changes will even
> According to Industrial Info Resources, a leading provider of industrial intelligence data, the sustained high prices for oil and natural gas that existed at the time prompted an increasing interest in drilling in locations that were previously not consi
> An article published in The Irish Times by Olive Keogh cites the following comments by Patrick Gibbons, professor of strategic management at the UCD Michael Smurfit Graduate Business School: The one thing we know about most forecasts is that they are wro
> Writing in The Australian Financial Review Jack Mintz states that for investment decisions, taxes matter, and Australia’s company tax rate (30 per cent) is too high in international terms to be competitive for capital. Australia now imposes a higher tax
> For many companies their focus on cost reduction has been limited to the costs of their internal activities. This internal focus has resulted in companies adopting JIT practices and outsourcing in order to reduce costs. The implementing of JIT practices
> Increasingly, householders and small businesses are considering renewable power generation systems to decrease their costs. Most of the UK, Ireland and Scandinavia are suited to generating energy from wind, whereas more central European countries tend to
> The Africa Research Bulletin reported the results of a prefeasibility study by Ironveld plc stating that the grades for pig iron and ferro vanadium were better than expected at its project on the Northern Limb of the Bushveld Complex in South Africa. The
> All businesses have to continually engage in capital investment to improve and maintain processes, equipment and facilities. Governments also invest in infrastructure projects like roads, rail and utilities provision. Whether a private or public organiza
> Public sector organizations increasingly must account for their performance and provide quality services at lower costs. To accomplish this many local authorities and public sector organizations have used ABC systems but many have tried ABC and abandoned
> A 2011 guidance paper commissioned by the Institute of Risk Management gives some useful detail on what risk appetite is and how to manage it – either in a corporate governance sense or to inform how the organization is run. The report notes the term ris
> According to Gillian Lees, a blogger on www.cimaglobal .com, the typical risk assessment model for a management accountant reads like this: identify risks, assess their impact and probability, and develop risk responses. This seems a reasonable approach,
> The CGMA website offers management accountants a collection of tools and resources which are useful to identify, assess and respond to (or manage) various types of risk faced by an organization. For example, it identifies risks in four categories – exten
> The remuneration system that is applied in healthcare organizations in several countries (e.g. Australia, the USA, Switzerland, Spain and Italy) enables ABC profitability analysis to be applied in hospitals. These countries apply the Diagnosis Related Gr
> Raab, Shoemaker and Mayer (2007) developed a workable ABC model for a restaurant operation in the USA that enabled previously undistributed indirect operating expenses to be traced to individual menu items. Menu prices were previously determined on a cos
> Until recently, Xu Ji Electric Co Ltd was a typical state-owned Chinese enterprise manufacturing electrical product such as relays. From an accounting point of view, this implied a manual book-keeping system which was primarily designed to meet external
> In recent years, two global companies have had to deal with some quite large costs as a result of quality control failures. First, take the example of Toyota cars in the USA. In late 2009 and early 2010, Toyota recalled several of its US models, the Camr
> In an article in Strategic Finance, Garry Cokins states that many companies’ managerial accounting systems are not able to report customer profitability information to support analysis for how to rationalize which types of customers to retain, grow or wi
> In the first quarter of the year 2015/2016, City Steel’s total revenues (THB 135.44 million) decreased by 35 per cent compared with the previous year. Adverse economic conditions caused the Group’s products to decrease substantially and made price compet
> Apple Inc. is well known for developing innovative products like the iPhone, iPad and iPod. Such devices are manufactured with complex electronic components and incur substantial design and development costs. The actual cost of manufacture of these produ
> Cloud computing is a term used to describe the delivery of information systems without, for example, the purchase of physical hardware or even software in some instances. What this means for an average business is that they can purchase processing capabi
> Asda is staging a major push south opening 11 new stores in the greater London region over the next few months with plans for a further 150 by 2018. Two of the new stores will be a trial of a new smaller format. These will be Asda’s first ‘High Street’ s
> The economic recession has resulted in original equipment manufacturers (OEMs) seeking to drive down costs by re-examining their manufacturing strategy, with many companies increasing their level of outsourcing, writes Ronnie Darroch, Plexus regional pre
> According to an article authored by Yayla-Küllü et al., multi-product firms account for 91 per cent of the output in US manufacturing and they often make short- to medium-term adjustments in their product-lines. For many of these product-line decisions,
> Most developed economies have well-developed road and highway networks. From time to time new highways are built to relieve congested cities, but by and large most developed countries are not embarking on major road-building projects. Reducing government
> Operating leverage can tell investors a lot about a company’s risk profile, and although high operating leverage can often benefit companies, firms with high operating leverage are also vulnerable to sharp economic and business cycle swings. In good time
> According to the International Air and Transport Association (IATA) conference airlines were expected to make around £3.18 profit from each passenger in 2014. Although carriers were expecting net profits of £11 billion, margins were so thin the air indus
> Every time Apple releases a new device it cannot satisfy immediate demand. This is a result of Apple’s precise JIT manufacturing system. Apple does not wish to take the risk of producing more devices than it will sell, so it adjusts manufacturing to matc
> The break-even price of crude oil includes production costs, exploring or finding costs, oil well development costs, transportation costs, and selling and general administration expenses. A survey published in 2015 showed some interesting insights into t
