COST ACCOUNTING -- AMIS H525

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.

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Thursday, January 9

Classical Foundations: Cost

. Study Chapter 2. Work through Using Excel . . .

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

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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

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Thursday, January 16

Financial Reporting Influences

. Study Accounting in Perfect and Complete Markets

. 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

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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

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Thursday, January 23

Product Costing: Heterogeneous Products

. Study Ch. 6 and Cost Allocation and Linear Programming.

. Prepare for discussion purposes the solutions to 6.13, Ralph's Curse.

Presentations: Group 7: ___________________ 6.13

Group 8: ___________________ Ralph's Curse

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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

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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

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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

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Thursday, February 6

Economic Behavior under Uncertainty

. Study Risk Sharing Tutorial.

. 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

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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

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Thursday, February 13

Examination 1

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Tuesday, February 18

Managerial Performance Evaluation

. Study The Stewardship Role of Accounting.

. Prepare for discussion purposes the solutions to Ralph's Decomposition and Ralph's Sales Incentives.

Presentations: Group 2: ___________________ Ralph's Decomposition

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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

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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

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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

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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

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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

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Tuesday, March 11

Communication and Budget Participation

. Study Costs of Decentralization.

. Prepare for discussion purposes the solutions to Decentralized Ralph.

Presentations: Group ?: ___________________ Decentralized Ralph

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Thursday, March 13

Historical Cost Reporting

. On the Role of Historical Cost Reporting.

Presentations: Group ?: ___________________ Multiperiod Ralph

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