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Pre-Paid Legal Services, Inc.
by Paul M. Healy Jacob CohenPre-Paid Legal Services' business model reveals two key issues--managing the sales force and sales growth and managing claims. Students analyze the economics of the business and consider how to measure firm performance, how to evaluate and reward the sales force, and what services to offer. The case also discusses a Fortune article criticizing Pre-Paid Legal's method of reporting sales force commissions. Students are asked to evaluate Fortune's analysis and to recommend potential responses by Pre-Paid Legal's management.
Recognizing Revenues and Expenses: Realized and Earned
by Robert S. KaplanDescribes a key concept in financial accounting: choosing an appropriate revenue recognition point. The accrual process requires revenue recognition and expense matching for reporting on the value creation process of companies. Describes the two key criteria for revenue recognition--realized and earned--and the conditions that must be met to satisfy these criteria. The use of the typical recognition point, when the product or service is delivered to the customer, is discussed as well as situations (e.g., the percentage of competition method) when revenue can be recognized before actual delivery. A rewritten version of an earlier note.
New Profit, Inc.: Governing the Nonprofit Enterprise
by Robert S. KaplanNew Profit, Inc. (NPI) is an innovative venture philanthropy fund. Founded by social entrepreneur Venessa Kirsch, NPI intends to raise large donations from individuals who wish to invest in nonprofit enterprises that could have a significant social impact and the capability to grow to scale. NPI searches and identifies such organizations, provides initial funding, monitors their performance, and then provides additional funding to enable them to become high-impact, nationwide organizations. NPI uses the Balanced Scorecard approach for measuring both its own performance and that of its portfolio companies. The Balanced Scorecard provides the language for the performance contract between NPI and its funders and board, and between NPI and its portfolio organizations.
Cambridge Hospital Community Health Network: The Primary Care Unit
by V. G. Narayanan Lisa Brem Ryan MooreThe Cambridge Hospital Community Health Network needed to gain a better understanding of its unit-of-service costs, which had been rising at a rate of 10% per year. The network's step-down costing system gave only aggregate costing information, and there was some concern that it might be inaccurately representing the true cost of the intern and resident program, the interpretive services department, and the use of nurse practitioners. So the Primary Care Unit (PCU) initiated a pilot activity-based costing program. The case provides detailed exhibits on the methods of allocating costs using activity-based drivers.
Owens & Minor, Inc. (A)
by V. G. Narayanan Lisa BremA forward-thinking manager at Owens & Minor (O&M), a large national medical and surgical distribution company, enlisted the help of both logistics and cost managers to develop an innovative pricing schedule based on the customer's activities instead of the price of the product since the existing cost-plus pricing structure made it impossible for O&M to price services appropriately. The case also explores the customer resistance to his new proposal.
Standard International, Inc. (A)
by David F. HawkinsThe company top management must make a series of accounting decisions that will determine the company's quarterly income. A rewritten version of an earlier case.
Hollydazzle.com
by Ratna SarkarThis case describes the unique underlying economics of a start-up Internet retailing company. It highlights the fact that costs in that setting have a component that varies with volume and thus seriously impacts profitability.
Owens & Minor, Inc. (B)
by V. G. Narayanan Lisa BremAfter a manager at Owens & Minor, a national medical and surgical distribution company, proposes and develops a formalized activity-based pricing and activity-based management approach to sales and service provision, this case explore the outcome.
To Trim or Not to Trim: That Is the Question
by Srikant M. DatarShould Novartis drop 20% of its global pharmaceutical product brands that account for only 3% of its pharmaceutical revenues?
Bausch & Lomb, Inc. (A)
by Christopher F. Noe Gregory S. MillerBausch & Lomb (B&L) instituted an aggressive sales program in the final weeks of its 1993 fiscal year that pushed a large amount of inventories onto distributors. The company recognized revenues on these products when they were shipped. A rewritten version of an earlier case.
Sears, Roebuck and Co. vs. Wal-Mart Stores, Inc.
by Christopher F. Noe Gregory S. MillerThis case is designed to familiarize students with the use of financial ratios. Two retailers, Sears, Roebuck and Co. and Wal-Mart Stores, Inc., have a very similar value for return on equity (ROE) in the 1997 fiscal year. Students use the information in the case and the accompanying exhibits, which include financial statements as well as disclosures regarding corporate strategies and accounting policies for each company, to analyze the value creation process for each firm. This case provides a good introduction regarding the combination of such information to create a powerful tool for financial statement analysis. A rewritten version of an earlier case.
Asset Reporting
by Paul M. Healy Preeti ChoudharyUsing historical cost and conservatism to identify and value assets, this case explains the criteria for asset reporting in straightforward situations and then examines scenarios where implementing the criteria for recognition and valuation of assets is conceptually challenging. These more complex situations occur when: 1) Ownership or control of a resource is uncertain; 2) The economic benefits from outlays are uncertain or difficult to quantify; or 3) Resource values have changed.
Expense Recognition
by Paul M. Healy Preeti ChoudharyRecording expenses is not often clear-cut and can require considerable management judgment. This case discusses expense recognition in straightforward situations and then considers expense transactions that may be more complex to record. It uses examples that include situations in which: 1) The value of resources consumed is difficult to define; 2) Resources provide benefits for multiple years; 3) Resources are consumed, but the timing and amount of future payments is uncertain; and 4) Unused resources have declined in value.
Revenue Recognition
by Paul M. HealyThis case discusses revenue recognition in straightforward situations and then considers revenue transactions that may be more complex to record. Revenue recognition criteria can be implemented for the following situations: 1) Customers pay prior to delivery; 2) Products/services are provided over multiple years; 3) Credit-worthiness of the customer is questionable; and 4) Money-back guarantees are offered.
Financial Statement and Ratio Analysis
by Paul M. Healy Jacob CohenPrepares students for financial ratio analysis.
Novartis Pharma: The Business Unit Model
by Carin-Isabel Knoop Srikant M. Datar Cate ReavisIn June 2000, Novartis reorganized its pharmaceutical business to form global business units in oncology, transplantation, ophthalmology, and mature products. The remaining primary care products continued to be managed within global functions (e.g., R&D and marketing). The new organization created a matrix structure and new roles and responsibilities for heads of business functions, CEOs of new business units, and country managers operating in over 100 countries.
Software Associates
by Robert S. KaplanThe president of a small consulting firm has just seen his second-quarter profit and loss statement, showing an increase in revenues but a substantial decline in profits. He asks his chief financial officer to explain the results. The CFO works hard to accumulate information to explain the impact of the quantity of billed hours, billing rates, consultant expenses, operating expenses, and the shifting mix of business between the two principal product lines.
Variance Analysis and Flexible Budgeting
by Robert S. KaplanFacilitates the teaching of cases on variance analysis and flexible budgeting. Uses algebra, diagrams, and numerical examples to illustrate the calculation of price, quantity, and mix variances for revenues and costs, and a flexible budget for analyzing indirect and support costs.
Amazon.com in the Year 2000
by Krishna G. Palepu Jeremy CottAn analyst's critique of Amazon's prospectus from the perspective of its bond holders.
Revenue Recognition and Reporting
by David F. HawkinsDiscusses revenue recognition and reporting rules, guidelines, and issues. A rewritten version of an earlier note.
Montefiore Medical Center
by Robert S. Kaplan Noorein InamdarA large urban medical center implements the Balanced Scorecard management tool. Elaine Brennan, senior VP of operations, has reorganized a highly functional health care organization into decentralized patient care centers and support units. Having recently endured the pain of a major downsizing, she wants the various constituents--senior managers, physicians, nurses, technicians, and the work force--to explore implementing a new strategy focused on growth and patient care. But the existing measurement and management system reports only on costs and financial results. She introduces the Balanced Scorecard as a mechanism to increase attention to and accountability for quality, service, work environment, and employee outcomes, as well as revenues and costs.
Accounting for the Intel Pentium Chip Flaw
by Gregory S. Miller V. G. Narayanan Lisa BremInvestigates the 1994 Intel Pentium plan.
Rent-Way, Inc. (A)
by David F. HawkinsThe company uses the units of activity method to account for its rental inventory. A prominent hedge fund advisor recommends the company's stock be sold short.
Wilkerson Co.
by Robert S. KaplanThe president of Wilkerson, faced with declining profits, is struggling to understand why the company is encountering severe price competition on one product line while able to raise prices without competitive response on another product line. The controller proposes that the company develop an activity-based cost model to understand better the different demands that each product line makes on the organization's indirect and support resources. A rewritten version of an earlier case.
Verizon Communications, Inc.: Implementing a Human Resources Balanced Scorecard
by Marc J. Epstein Srikant M. Datar Jeremy CottIn early 2000, Verizon Communications implemented a Human Resources Balanced Scorecard to evaluate the effectiveness of and payoffs from human resource management. This case describes the benefits of the scorecard and the challenges of measurement and implementation. Teaching Purpose: To help students understand: 1) how to implement a Balanced Scorecard, 2) how to measure and improve the effectiveness of support functions, and 3) how to link non-financial measures to financial measures of support functions when financial benefits are difficult to quantify.
Role of Capital Market Intermediaries in the Dot-Com Crash of 2000
by Gillian Elcock Krishna G. PalepuSet in the context of the rise and fall of the Internet stocks in the United States.
Boston Lyric Opera
by Robert S. Kaplan Dennis CampbellThe Boston Lyric Opera was the fastest growing opera company in North America during the 1990s. Having successfully completed a move to a larger facility in 1999, the board and general director recognize the need to develop a formal strategic planning and governance process to guide the company into the future. Board members, senior managers, and artistic leaders use the Balanced Scorecard (BSC) as the focus of a multi-month strategic planning process that develops a strategy map and objectives in the four BSC perspectives for three core strategic themes. This case describes the high-level scorecard development, its cascading down to departments and individuals and the directors' interactions--using the Balanced Scorecard--with the artistic leaders and board of directors.
Home Depot, Inc., in the New Millennium
by Krishna G. Palepu Jeremy CottAfter nearly two decades of spectacular performance, Home Depot reported a disappointing performance in the year 2000. The company began expanding its business scope as a result of saturating its growth in the core business. This case explores whether the disappointing performance is just a temporary slip or if the company is reaching the limits of sustainability of its competitive advantage.
Conceptual Framework for Financial Reporting
by David F. Hawkins Jacob CohenDiscusses the conceptual framework for financial reporting as set by the Financial Accounting Standards Board. Discusses the objectives of financial statements, assumptions of financial accounting, characteristics of accounting information, accounting principles for recognition and reporting, constraints of financial reporting, and elements of financial statements.
Mechanics of Financial Accounting
by David F. Hawkins Jacob CohenExplains in simple terms and numerical examples how the language of accounting is spoken and communicated to financial statement users. Describes terms such as "debits," "credits," "journal entries," "t-accounts," and "financial statements."
Delays at Logan Airport
by George Batta V. G. NarayananLogan Airport is facing mounting delays for flights landings and takeoffs, especially in inclement weather. An additional runway and peak-period pricing are two alternatives being considered.
Dakota Office Products
by Robert S. KaplanThe senior management team of Dakota, an office products distributor, is concerned about the company's first loss in history. Explores the role for activity based costing and customer profitability measurement in a distribution company. Dakota's customers are increasingly demanding more specialized services, such as desktop delivery. Also, whereas some customers have switched to electronic ordering, others continue to place their orders manually. Pricing is based on a fixed markup of the cost of the purchased item. The managers feel that the fixed markup may not be compensating them for the higher costs of manual order processing and desktop delivery. The financial manager initiates an effort to estimate the costs of handling the different types of orders so that she can estimate the profitability of individual customers based on their actual order pattern.
Queueing Theory
by George Batta V. G. NarayananExplains the assumptions behind and the insights from a simple queueing model.
Financial Reporting Environment
by Paul M. Healy Robert S. Kaplan Krishna G. Palepu Amy P. HuttonProvides a framework for understanding the role of financial reporting and various intermediaries as mechanisms for reducing both adverse selection and moral hazard problems in capital markets. Financial reports reduce adverse selection by providing basic information for investors and their agents before they make initial capital resource allocation decisions. Subsequently, after capital is allocated to particular business ventures, financial reports reduce moral hazard between managers and investors by supplying information used in contracting between investors and managers to reduce conflicts of interests. Various institutional mechanisms and information intermediaries monitor and limit the manipulation of reported information by managers and constrain managers' ability to act in their own self-interest, rather than investors' interests. They also improve information production, reduce incentive conflicts, and enable capital markets to function effectively and efficiently, channeling the economy's savings to the most productive opportunities.
Anagene, Inc.
by Robert S. Kaplan Christina DarwallAn entrepreneurial, publicly traded biotech company has begun production and sales of its core product--cartridges that permit DNA samples to be analyzed on a microchip. In the early quarters, sales are difficult to forecast and the company has experienced fluctuating production volumes and unpredictable gross margins, which has upset the board of directors. The finance staff investigates whether to adopt a new costing approach based on capacity. With large amounts of unused capacity, the decision of how to apply capacity costs is critical to the company's management and its reporting strategy with analysts.
eBay, Inc.: Stock Option Plans (A)
by Mark T. BradshawThe footnote disclosure for eBay, Inc. in 2000 indicates that if the company had accounted for employee stock options under the fair value method, its reported profit of $48 million would have been a loss of $91 million. The protagonist is a prospective member of the compensation committee of the board of directors, which provides a corporate governance perspective on the role of compensation in attracting, motivating, and retaining talented employees.
Accounting for Employee Stock Options
by Mark T. BradshawEmployees who have been granted stock options have the right to purchase shares of their company's stock at a specified price within a specified time period. The accounting for such employee stock options has been a controversial and complex topic for decades. The debate has continued to the present time because of the high visibility of company executives who have made fortunes under their stock option programs. This note chronicles the history and debate surrounding the rules for stock options accounting and provides a simple, instructive example of accounting entries for fixed stock option grants.
Customer Profitability and Customer Relationship Management at RBC Financial Group
by V. G. Narayanan Lisa BremThe Royal Bank of Canada uses customer relationship management and customer profitability tools to gain a competitive advantage in Canada's increasingly crowded financial services market. The case presents two pricing and customer management issues: one from the point of view of the vice president of customer relationship marketing and the other from a line manager's perspective.
Metalcraft Supplier Scorecard
by Susan Kulp Ronald L. Verkleeren V. G. NarayananAn automotive components company uses a supplier scorecard to make sourcing decisions and review its supplier performance.
Borealis
by Robert S. Kaplan Bjorn N. JorgensenWhen Borealis, a European producer of plastics, used a traditional, time-consuming budgeting process, the budget was quickly out of date in a competitive environment characterized by continually changing input and output prices and dynamic market conditions. This case describes the process that led Borealis to replace its budgets with four targeted management tools: rolling financial forecasts, Balanced Scorecard, activity based costing, and investment management. It also discusses the process of implementing the new measurement and control systems.
Activity Based Management at W.S. Industries (B)
by Jeremy Cott V. G. NarayananDescribes activity-based budgeting at W.S. Industries. Also describes target costing-led product redesign, and product, customer, and order profitability.
Supply Chain Close-Up: The Video Vault
by V. G. Narayanan Lisa BremThe owners of the Video Vault struggle to determine the optimal stocking levels of home videos in an industry fraught with new technology, new pricing paradigms, and stiff competitive pressure from large national chains. Teaching Purpose: To demonstrate the role of incentive contracts in achieving supply chain coordination.
Customer Profitability and Customer Relationship Management at RBC Financial Group (Abridged)
by V. G. Narayanan Lisa BremThe Royal Bank of Canada uses customer relationship management and customer profitability tools to gain a competitive advantage in Canada's increasingly crowded financial services market. The case presents two pricing and customer management issues: one from the point of view of the vice president of customer relationship marketing and the other from a line manager's perspective.
Management Earnings Disclosure and Pro Forma Reporting
by Jacob Cohen Mark T. BradshawIntroduces a discussion of management earnings disclosure and the growing use of pro forma reporting by corporations. Highlights the background of pro forma reporting, how it has been used in the past couple of years, and what the regulators at the capital markets think about this form of earnings disclosure. Also examines two companies' use of pro forma.
Siebel Systems: Organizing for the Customer
by Robert L. Simons Antonio DavilaSiebel Systems is one of the fastest growing companies in America. Tom Siebel, the company's founder, has organized the business to accommodate growth and focus on the customer. Innovative information technology systems and clear accountability prove to be essential to this new approach to organization design. For example, a new employee must successfully pass an online test to demonstrate her understanding of Siebel's management systems and practices.
United Parcel Service's IPO
by Paul M. Healy Brett Laschinger Ajay ShroffExamines the valuation of United Parcel Service (UPS) at the time of its IPO in mid-1999. Offers students the opportunity to assess UPS's current performance relative to its major competitor, Federal Express (FedEx), and to judge whether that performance is sustainable. Students then make projections of UPS's future earnings performance, estimate on IPO price, and assess the reasonableness of their estimate compared to the valuation of FedEx and best-in-class leaders.
DoubleClick, Inc.
by Thomas D. Fields Jacob CohenExamines DoubleClick's capital structure from IPO. Discusses additional offering of common stock, stock splits, dividends, sale of convertible debt, repurchase of convertible debt, and repurchase of common stock.
Krispy Kreme Doughnuts
by Paul M. HealyKrispy Kreme is a rapidly growing firm with a business model that has excited Wall Street.
Internet Customer Acquisition Strategy at Bankinter
by F. Asis Martinez-Jerez V. G. Narayanan Lisa BremBankinter, a relatively small Spanish bank, has a large presence as an Internet financial services provider. Leading the way to profitability through the Internet will give Bankinter a major competitive advantage over the larger, more established Spanish banks. Ann Peralta, director of the Internet network in Bankinter, must evaluate whether the thousands of new customers pouring in from other portals are profitable for the bank. Peralta uses tools such as customer relationship management, activity-based costing, customer profitability, and lifetime value computations to determine the value of this cohort of new customers for the bank and in doing so, can decide on future customer acquisition strategies.
Boston Automation Systems, Inc.
by David F. HawkinsDaniel Fisher, the CFO of Boston Automation Systems, must review a number of revenue transaction accounting policies following the issuance of the Securities and Exchange Commission's Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements." Teaching Purpose: To explore the earned and realized criteria for recognition of revenue.
Keane's Acquisition of Metro Information Services (A)
by F. Asis Martinez-JerezOn August 21, 2001, Keane, Inc. announced the acquisition of Metro Information Services, Inc. This case analyzes the challenges facing firms and examines transactions whose major source of value creation hinges on intangible assets (e.g., people or knowledge).
Store24
by Susan Kulp V. G. Narayanan Dennis CampbellIllustrates how nonfinancial performance measures can be used to manage a business and evaluate the success of a strategy.
Arthur Andersen LLP
by David F. Hawkins Jacob CohenThis case highlights the history of Arthur Andersen and the collapse of the firm following the Enron Corp. audit and the Department of Justice obstruction of justice conviction.
Deferred Taxes and the Valuation Allowance at Lucent Technologies, Inc. (A)
by Gregory S. Miller Jacob CohenThe concept of deferred tax accounting is introduced, along with examples to demonstrate the balance sheet perspective of FAS #109.
Deferred Taxes and the Valuation Allowance at Lucent Technologies, Inc. (B)
by Gregory S. Miller Jacob CohenSupplements the (A) case.
How to Induce Retailers to Reduce Stockouts?
by V. G. NarayananDescribes how the lack of incentive alignment between retailers and their vendors can lead to stockouts. Also describes various means to reduce incentive misalignment and hence stockouts.
Prudential Securities
by Paul M. Healy Amanda Cowen Boris GroysbergPrudential Insurance Co. attempted to diversify into financial services by building an investment banking franchise. Prudential's initial foray into the industry was its acquisition of The Bache Group in 1982. In 2000, the company decided to exit investment banking. The firm adopted various strategic positions and human resource management strategies during the 18 years it struggled to compete successfully against prestigious incumbents. Although Prudential's efforts to establish a top-tier investment bank ultimately failed, other firms did succeed in this endeavor.
PolyMedica Corp. (A)
by David F. Hawkins Jacob CohenThe Securities and Exchange Commission and investors question PolyMedica Corp.'s practice of capitalizing rather than expensing of direct-response advertising.
Bill French, Accountant
by Robert C. Hill Neil E. HarlanBreak-even point analysis: incorporation of anticipated changes in accounting analysis.
First Commonwealth Financial Corp.
by Robert S. KaplanFirst Commonwealth Financial Corp., a financial institution in central and southwestern Pennsylvania, implemented the Balanced Scorecard for describing and implementing its new customer-focused strategy. Its founder and chairman decided that the Balanced Scorecard also should become the primary information input for the corporate governance process with the board of directors so that the board could become more knowledgeable about and more actively involved in the company's strategy. Describes how the board became knowledgeable about the company's Balanced Scorecard and how it participated in developing a Balanced Scorecard for itself. In addition to the enterprise and board scorecards, the company also developed scorecards for each senior executive for the governance and compensation committees to assess and reward senior management performance. Extensive exhibits illustrate the three different scorecards and the reports and supporting documents for these scorecards.
Hewlett-Packard-Compaq: The Merger Decision
by Jonathan Barnett Krishna G. PalepuHewlett-Packard's proposed $24 billion acquisition of rival Compaq marked the largest merger in the history of the computer industry. The merger was Hewlett-Packard's response to sweeping changes impacting the technology industry. The severity of the stock market's reaction to the deal's announcement, coupled with a "slim but sufficient" 51.4% shareholder approval margin, left many wondering whether the deal was beneficial for shareholders.
Farmington Industries, Inc.: Managing Currency Exposure Risk
by David F. Hawkins Jacob CohenThe December 20, 1994 Mexican devaluation creates U.S. dollar losses for an unprepared U.S. corporation with multiple operations in Mexico.
Mondavi Winery
by Thomas Doyle Gregory S. MillerExamines Mondavi Winery's struggle to communicate its value proposition to the market following an apparently successful IPO. The Mondavi Winery had a strong reputation for innovation in the wine industry and had undertaken an IPO to secure the funding needed to continue to build on this tradition. Although the IPO was an initial success, the stock price soon began to fall. Places students in the role of the company founder, Robert Mondavi, as he considers how to communicate the vision of his family's company to investors. Beyond the primary issue of developing a communication strategy, this case allows students to consider the demands for communication created by an IPO and the impact on the management of the company.
Ford Motor Co.: Quality of Earnings Growth Analysis (A)
by David F. Hawkins Jacob CohenEven though Ford Motor Co. reports improved profitability, an equity analyst issues a sell recommendation and Standard & Poor's downgrades long-term debt.
Bond Ratings
by David F. HawkinsDescribes the considerations entering into a long-term debt rating.
Executive Remuneration at Reckitt Benckiser plc.
by Jay W. Lorsch Krishna G. Palepu Ashley C. Robertson V. G. Narayanan Lisa BremReckitt Benckiser plc has developed an executive compensation system. This case outlines the structure of the system, its emphasis on performance-based pay and a global outlook, and explains the role of the human resources department, the board of directors, and company shareholders in determining pay. It raises questions about how to balance incentive remuneration effectively in recruiting and retaining top managers, while addressing shareholder concerns about executive compensation.
Accounting Fraud at WorldCom
by David Kiron Robert S. KaplanThe principal players in WorldCom's accounting fraud included CFO Scott Sullivan, the General Accounting and Internal Audit departments, external auditor Arthur Andersen, and the board of directors. The case provides sufficient detail to allow for a full discussion of the pressures that lead executives and managers to "cook the books," the boundary between earnings smoothing or management and fraudulent reporting, the role for internal control systems and internal audit to prevent or rapidly detect accounting fraud, the expectations about governance processes performed by external auditors and the board of directors, and the pressure and consequences when middle managers follow orders that they know are wrong. Written from the public record, the case contains numerous quotes from an individual involved in the WorldCom fraud that were reported by the Investigative Committee and Wall Street Journal articles about several of the individuals caught up in the situation.
Midwest Office Products
by Robert S. KaplanPresents an easy introduction to time-driven activity-based costing (ABC) that allows students to build a simple ABC model of order profitability. Midwest's time-driven ABC approach is based on two categories of parameter estimates. The first is the cost per hour of employees performing diverse tasks, such as order-entry operators and delivery personnel performing desktop deliveries. The second is the estimated time required for employees to perform each type of task (manual vs. electronic orders, nearby vs. distant deliveries). Students apply the time-driven ABC model to five representative orders to estimate order profitability based on a far more accurate portrayal of the cost of processing and delivering orders. Stimulates a discussion about the actions, such as pricing and process improvements, to enhance the profitability of orders and also how to report and manage the cost of unused capacity. A rewritten version of an earlier case.
Enron Corp.: May 6, 2001 Sell Recommendation
by David F. Hawkins Jacob CohenA consulting firm to institutional investors recommends selling Enron Corp.'s equity short on May 6, 2001, while many sellside analysts are recommending the stock as a "buy."
Salem Telephone Co.
by Julie H. Hertenstein William J. Bruns Jr.A computer subsidiary appears to be unprofitable. Managers must determine whether it is actually unprofitable and consider whether changes in prices or promotion might improve profitability. Allows clear separation of variable costs from fixed costs. A rewritten version of an earlier case.
Tots R Us
by Thomas D. Fields Tom Fields Susan KulpPresents an overview of many issues associated with cost accounting and control.
G.G. Toys
by Susan Kulp Dennis CampbellThis case highlights issues of management accounting and includes a review of product costing, excess capacity, variance analysis, and scrap costs.
Introduction to Responsibility Accounting Systems
by David F. Hawkins Jacob CohenIntroduces responsibility accounting systems.
Superior Manufacturing Co.
by David F. Hawkins James W Culliton Jacob CohenManagement must extract relevant cost data from the company's cost accounting system for product line decisions. A rewritten version of an earlier case.
Hala Madrid: Managing Real Madrid Club de Futbol, the Team of the Century
by Rosario M. De Albornoz F. Asis Martinez-JerezFlorentino Perez, the president of Real Madrid, a leading European soccer team, is preparing for a press conference in which he will be asked about his plans for the coming season. Economic success and some sports mishaps during the prior season represent the scenario in which planning decisions are made.
Land Securities Group (A): Choosing Cost or Fair Value on Adoption of IFRS
by Edward J. RiedlA U.K. real estate firm, required to adopt international accounting standards (IAS) by 2005, must change the reporting of its primary asset (investment property) from the revaluation model under U.K. GAAP to either the cost or fair-value model under IAS. This would have a number of effects on European investment property firms, including Land Securities.
Process of Going Public in the United States
by Gregory S. MillerSummarizes the process of going public: the steps for SEC approval, the role of the SEC, and the roles of major players such as underwriters and printers.
Henkel Iberica (A)
by F. Asis Martinez-Jerez V. G. Narayanan Lisa BremIn 2002, Esteban Garriga, customer service director at Henkel Iberica, questions whether Collaborative Planning, Forecasting, and Replenishment (CPFR) would help manage retail promotions and limit their impact on the stock-outs and obsolete inventory. Describes the situation facing Henkel Iberica, the Spanish subsidiary of the German consumer products company Henkel KgaA, with respect to the management of retail promotions. The increasing number of promotions and the complexity of the company portfolio seriously taxed Henkel Iberica's sales, production, and distribution systems. Many in the organization believed the company should abandon or cut back promotions and adopt an everyday low pricing strategy. Garriga believes the solution to be in CPFR. Describes Henkel Iberica's operations and provides the necessary background to discuss whether CPFR is the adequate solution for its problems.
Harley-Davidson, Inc.: Motorcycle Manufacturer or Financing Company?
by Gregory S. Miller Jacob CohenHarley-Davidson manufactures and sells motorcycles. It also provides financing for retail purchases and dealer stock. Although Harley's performance has been very strong, analysts and the press have questioned its use of a special-purpose entity to sell securities collateralized by its financing activities. Harley's management must decide how to balance the street's suspicion of this activity with its strategy of providing a "whole motorcycle experience" and the high level of profits created by the current arrangement.
Procurement at Betapharm Corp. (A)
by Susan Kulp Taylor RandallPresents a move by Betapharm to centralize procurement and e-sourcing and the many control and incentive issues that arose subsequently.
Costing Alternative Choices
by David F. Hawkins Jacob CohenDiscusses the role of differential cost and revenues in solving alternative choice problems.
Musimundo
by James R. Dillon F. Asis Martinez-JerezMario Quintana, managing partner of Pegasus Capital, was preparing for the upcoming Musimundo board of directors meeting. He was satisfied with the investment decisions of the entertainment retailer, as actual performance surpassed the initial budget. However, given a recent market rebound, Quintana worried that the firm might be falling short of its potential. Additionally, the board of directors would have to analyze a proposal to reset sales targets for the different stores.
Stamford International Inc.
by David F. HawkinsManagement is struggling to meet consensus quarterly earnings-per-share numbers. Discusses a number of accounting decisions. A report indicating internal control problems in one of the company's divisions raises a Sarbanes-Oxley certification issue. A rewritten version of an earlier case.
Introduction to the Management Control Process
by David F. HawkinsCovers the management control process.
Assessing Accounting Risk
by David F. HawkinsDescribes a framework that financial analysts can use to assess the likelihood of accounting misstatements in financial statements.
Activity-Based Costing and Capacity
by Robert S. KaplanDiscusses the use of budgeted rather than historical data in an activity-based costing (ABC) model and argues for calculating rates using practical capacity, not actual utilization. An ABC model need not be limited to analysis of historical data. When cost driver rates are calculated based on forecasted data, they can be used proactively for decisions such as pricing and order acceptance. Second, to avoid distortion of cost driver rates caused by unused capacity, the rates should be calculated using the practical capacity of the resources performing the activity. Discusses how to estimate practical capacity in various situations, including lumpy capacity acquisition, ramp-up of capacity utilization, seasonal and peak-load capacity, and differing service quality levels from supplied capacity.
Executive Compensation at General Electric (A)
by Michele Jurgens V. G. NarayananFaced with falling share prices and the critical eye of the media focused on Jack Welch's retirement plan, newly appointed CEO Jeff Immelt had the challenge of reassessing GE as a leader of corporate integrity and good governance. Presents the changes Immelt initiated in the board of directors, in Immelt's own compensation scheme, and in the compensation scheme for all GE executives, designed to address GE's corporate governance issues. Examines the use of stock options and alternative stock-based incentive schemes, along with the importance of each tool in a total compensation plan. A rewritten version of an earlier case.
Accounting for Asset-Backed Securitization
by Gregory S. Miller Jacob CohenIntroduces the basic concept of asset securitization and the accounting for these transactions.
Domestic Auto Parts
by Robert S. KaplanDescribes a meeting of an executive team to discuss strategy for a company turnaround. The exercise is to construct a strategy map and Balanced Scorecard to capture the new strategy.
Accounting at MacCloud Winery
by Robert S. Kaplan David F. Hawkins Gregory S. MillerUses a fictional new winery to introduce accounting concepts and practices such as assets, liabilities, expenses, the matching principle, and contingent activities. Designed to approach the subject at a conceptual level, allowing class discussion to focus on the underlying thought process regarding accounting, rather than on "proper" numerical calculations.
Financial Reporting Problems at Molex, Inc. (A)
by Paul M. HealyFollowing an accounting problem at Molex, the firm's auditors request changes in management. The board of directors has to decide whether the auditors' concerns have merit or whether, as management argues, the accounting issue is immaterial.
Kemps LLC: Introducing Time-Driven ABC
by Robert S. KaplanKemps is making a strategy shift: from being focused on fulfilling customer requests to becoming the best cost dairy producer in the industry. Its existing manufacturing cost system, however, fails to capture the costs associated with handling special flavors, small production orders, and complex delivery and order processing options. The company introduces a new system--time-driven, activity-based costing--that captures the full complexity of its operations and gives managers new insights into the profitability of orders, products, and customers. The time equations feature simply and accurately represents the cost impact of all possible options from a particular production order. Managers use the information to enhance process efficiencies, negotiate new terms with customers, and attempt to win new business. The company now faces some crucial decisions about how to forge new relationships with key customers.
Understanding Customer Profitability at Charles Schwab
by F. Asis Martinez-JerezCharles Schwab is transforming into a customer-centric organization. Central to this cultural and organizational change is the utilization of customer profitability at different decision-making levels. Examines several technical aspects of the ABC cost system, as well as the change in budgeting and performance measurement introduced by the new profitability system. The system also shows how ABC informs segment and individual customer decisions (such as pricing or process improvement). Also examines Charles Schwab's necessary organizational changes (incentives, decision rights, etc.), as customer centricity is implemented throughout the firm.