**Winter 1997**

**Instructor:** Richard A. Young **Class Meets:** Tue, Thu, 9:30-11:30

**Office Hours:** To be announced **Office:** Hagerty 417B

and by appointment **Telephone:** 292-2488

**Homepage**:
http://www.cob.ohio-state.edu/facstf/homepage/young/Young.html

__INTRODUCTION__

You have been exposed to basic aspects of the practice and theory of accounting. Now it's time to take a closer (and more discriminating) look. The main objective of AMIS H525 is to undertake a careful exploration of why accounting information is valuable. In order to organize our study, we will build and use a framework for analyzing and evaluating managerial uses of accounting information.

The course requires serious thinking, a skill which is honed by presenting your

ideas. Studying as if one is preparing to explain aloud is much more effective than studying as if one is preparing to take a test.

Keep in mind that we are guided (but not confined) by numerical examples. The examples are not an end in themselves; they are a means of developing our understanding of accounting.

Our study is organized around the dual themes of accounting. The first is that accounting is about valuing assets and measuring income. The second is that accounting provides information that facilitates decision making.

We begin by exploring the concepts of cost and income in frictionless (perfect and complete) markets. Of course, without market frictions accounting is not very useful, but studying this setting establishes a useful benchmark. We also study uncertainty to develop some intuition for how accounting data can improve decisions.

Accounting is just one of many sources of information -- what's so special about it? We present the idea that accountability is the most important aspect of accounting disclosures. Managers report on their own activities and these reports are in turn used to evaluate them. Real forces tempt managers to bias their disclosures. Accounting data, with its transaction-by-transaction approach and double entry approach, is especially suited to resisting bias. This, in turn, makes it especially useful for disciplining other information sources.

__EVALUATION OF STUDENTS__

Grading will be based on a curve to allow for inter-semester differences in course content and examination difficulty. Final grades will be determined by ranking the student's cumulative scores. The scheme below allocates 60% of your grade to in-class activities. The exams will be very similar to cases presented in class.

1. Group presentations of problem sets (3) 30%

2. Problem set write-ups 20%

3. Participation 10%

4. Midterm exam (during class) 20%

5. Final exam (according to university schedule) __ 20%__

100%

__REQUIRED MATERIALS__

1. *Managerial Uses of Accounting Information,* by Joel
Demski.

2. *Course Packet (readings and problems)*. Purchase at
**Cop-Ez** at the **OHIO Union**.

__GROUP PRESENTATIONS__

In-class group presentations are intended to help you improve and synthesize your understanding of accounting by applying the concepts that have been developed in class and readings to problems. Where possible, groups will consist of two members. Your grade will be based on two aspects: (1) the correctness and presentation of your written solutions and (2) your ability to communicate the ideas.

Consistent with the theme, two written items should be turned in to me prior to your presentation: (1) your problem solutions and (2) an outline of your presentation. Both members of the group should be involved in the oral presentation. Given class time is a scarce resource, you may need to use your judgment in deciding which parts of your work to present. You should choose the interesting aspects of the problem and explain the ideas they illustrate, and not simply present the solution. The presentation should be 25-30 minutes in length. Handouts and visual aids (blackboard or overhead projector) are recommended.

__PROBLEM SET WRITE-UPS__

__Each__ day each student must turn in a short (1-3 page) write-up of
__each__ of the cases to be presented that day. No late write-ups will be
accepted. You may work in groups.

__CLASS PREPARATION AND PARTICIPATION__

Class attendance and participation are required. The ideas we are discussing are not simple to grasp, so active class discussions are important to our learning. Part of your participation grade includes your peer evaluation of the case presenters for that day. Substantive comments are appreciated by the presenters and by the instructor.

You will find it useful to use a spreadsheet package to plot functions and solve optimization problems. I recommend Excel and its Solver function.

__EXAMINATIONS__

There will be one two-hour, in-class examination on the twelfth class day and a final examination as scheduled by the University. They are closed-book, closed-note examinations. The examinations are designed to determine the degree to which you comprehend the concepts discussed in class. They will be challenging (and sometimes instructive).

-------------- **TENTATIVE OUTLINE **--------------

*Tuesday, January 7*

**Introduction**

** ^{.}** Acquire and bring to class the text and course packet.

^{.}** **Study Chapter 1. List three main points made in
Chapter 1 by Professor Demski (Joel). Be prepared to share them with the
class.

^{.} Read *Breaking Down the Barriers . . .*

^{.} Study Ch. 2 (through p. 20) and work 2.6 and
2.9.

^{.} Read and reflect on the Feynman and Stigler quotes
found on my Homepage.

_______________________________________________________________________________________________________________________________________________________________________________________________________________________

*Thursday, January 9*

**Classical Foundations: Cost**

** ^{.} **Study Chapter 2. Work through

^{.} Prepare for discussion the solutions to 2.7, 2.10,
2.14 and *Lynn's Cost Functions*.

_______________________________________________________________________________________________________________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________________________________________________________________________________________________________

*Tuesday, January 14*

**Classical Foundations: Income**

** ^{.} **Study Ch. 2 and 3.

^{.} Prepare for discussion purposes the solutions to 2.4, 2.13,
*Leo's Cost Functions*.

^{.} Prepare for discussion purposes the solution to 3.7.

__Presentations__: Group 1: ___________________ *Leo's Cost
Functions*

Group 2: ___________________ 2.4 and 2.13

*Thursday, January 16*

**Financial Reporting Influences**

** ^{.}** Study

^{.} Prepare solutions to 3.2, 3.8, 3.11, 3.12,* Ralph's Diff.
Div.*

__Presentations__: Group 3: ___________________ *Ralph's Different
Dividends*

Group 4: ___________________ 3.8, 3.12

*Tuesday, January 21*

**Product Costing**

** ^{.}** Study Ch. 5.

^{.} Prepare for discussion purposes the solutions to 5.11,
*Ralph's LLA, Ralph's Paradox, Ralph's Abnormal Earnings*.

__Presentations__: Group 5: ___________________ *Ralph's Abnormal
Earnings*

Group 6: ___________________ 5.11, *Ralph's Paradox*

*Thursday, January 23*

**Product Costing: Heterogeneous Products**

** ^{.}** Study Ch. 6 and

^{.} Prepare for discussion purposes the solutions to 6.13,
*Ralph's Curse.*

__Presentations__: Group 7: ___________________ 6.13

Group 8: ___________________ *Ralph's Curse*

*Tuesday, January 28*

**Cost Allocation and Linear Programming**

** ^{.}** Study Ch. 8.

^{.} Prepare for discussion purposes the solutions to 8.3,
*Ralph's Short Run Profit Maximization, Ralph's Multiproduct Cost*

__Presentations__: Group 9: ___________________ *Ralph's Short Run Profit
Max*

Group **2**: ___________________ *Ralph's Multiproduct Cost*

*Thursday, January 30*

**Joint Costs and Cost Allocation**

** ^{.}** Study Ch. 8.

^{.} Prepare for discussion purposes the solutions to 8.11,
8.12, 8.14, 8.7 and *Ralph's Service Cost Allocation*.

__Presentations__: Group 3: ___________________ 8.11, 8.12

Group 4: ___________________ *Ralph's Service Cost Allocation*

*Tuesday, February 4*

**Economic Behavior under Uncertainty**

** ^{.}** Study Chapter 4.

^{.} Prepare for discussion purposes the solutions to *Ralph's
Risk Preferences, Ralph's Decision, *4.10

__Presentations__: Group **1**: ___________________ *Ralph's Risk
Preferences*

Group 5: ___________________ *Ralph's Decision*

_____________________________________________________________________________________________________________________________________________________________________________________________________________________

*Thursday, February 6*

**Economic Behavior under Uncertainty**

** ^{.}** Study

^{.} Prepare for discussion purposes the solutions to 4.4, 4.11,
4.12, 4.13 , 4.14 and *Ralph's Insurance*.

__Presentations__: Group 6: ___________________ 4.11, 4.12, 4.13

Group 7: ___________________ 4.4, 4.14

*Tuesday, February 11*

**Library Integrity: Internal Control**

** ^{.}** Study Chapter 10.

^{.} Prepare for discussion purposes the solutions to 4.15,
*Ralph's Partnership* and 10.1, 10.2, 10.8, 10.12.

__Presentations__: Group 8: ___________________ Ralph's Partnership

Group 9: ___________________ 10.2, 10.8, 10.12

*Thursday, February 13*

**Examination 1**

*Tuesday, February 18*

**Managerial Performance Evaluation**

** ^{.}** Study

^{.} Prepare for discussion purposes the solutions to *Ralph's
Decomposition* and *Ralph's Sales Incentives*.

__Presentations__: Group **2**: ___________________ Ralph's*
Decomposition*

*Thursday, February 20*

**Managerial Performance Evaluation**

** ^{.}** Study Chapter 18. Read Dilbert.

^{.} Prepare for discussion purposes the solutions to *Ralph's
Control,* 18.8, and 18.9.

__Presentations__: Group **1**: ___________________ Ralph's Control

*Tuesday, February 25*

**Evaluation Based on Controllable Performance**

** ^{.}** Prepare for discussion purposes the solutions to 18.15,
18.11, 18.12.

__Presentations__: Group 3: ___________________ 18.15

Group 4: ___________________ 18.11, 18.12

*Thursday, February 27*

**Evaluation Based on Controllable Performance**

** ^{.}** Study Chapter 19.

^{.} Prepare for discussion purposes the solutions to 18.5,
18.17 and 19.4.

__Presentations__: Group 5: ___________________ 18.5, 18.17, 19.4

*Tuesday, March 4*

**Evaluation Based on Controllable Performance**

** ^{.}** Prepare for discussion purposes the solutions to 19.8,
19.9, 19.16, 19.17.

__Presentations__: Group 6: ___________________ 19.8, 19.16

Group 7: ___________________ 19.9, 19.17

*Thursday, March 6*

**Evaluation Based on Controllable Performance**

** ^{.}** Study Chapter 20.

^{.} Prepare for discussion purposes the solutions to 20.1,
20.3, 20.4, 20.9.

__Presentations__: Group 8: ___________________ 20.1, 20.9

Group 9: ___________________ 20.3, 20.4

*Tuesday, March 11*

**Communication and Budget Participation**

** ^{.}** Study

^{.} Prepare for discussion purposes the solutions to
*Decentralized Ralph*.

__Presentations__: Group ?: ___________________ *Decentralized Ralph*

*Thursday, March 13*

**Historical Cost Reporting**

^{.}*On the Role of Historical Cost Reporting*.

__Presentations__: Group ?: ___________________ *Multiperiod Ralph*