Table Of ContentAdvanced Management
Accounting Problems
Alsoby Kenneth P.Gee
ManagementPlanning and Control in Inflation
Management Control and Information
(with R.Beresford Dew)
ADVANCED
MANAGEMENT
ACCOUNTING
PROBLEMS
KennethP. Gee
ProfessorofAccountancy
DepartmentofBusinessandAdministration
University ofSalford
M
MACMILLAN
©KennethP.Gee1986
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Firstpublished1986
Publishedby
MACMILLANEDUCATIONLTO
Houndmills,Basingstoke,HampshireRG212XS
andLondon
Companiesandrepresentatives
throughoutthe world
British LibraryCataloguingin PublicationData
Gee,KennethP.
Advancedmanagementaccountingproblems.
1.Managerialaccounting-Problems,exercises,etc.
1.Title
658.1''511'076 HF5661
ISBN978-0-333-36270-9 ISBN978-1-349-18147-6(eBook)
DOI 10.1007/978-1-349-18147-6
Contents
Introduction xiii
PARTI: FULLY·WORKEDPROBLEMSAND THEIR
ANALYSIS
1 StandardCostingand Matrix Algebra 1
PrimaryReference:Franks and Manes (1967)
1.1 Radium DyestuffsLtd 1
1.2 Analysis 2
Introduction 2
Computationof price,quantityandmixed
variances 4
Computationof mixandyield variances 5
2 StochasticProcess Costing 10
Primary Reference:Corcoran and Leininger (1973)
2.1 Ottoline Electronics 10
2.2 Analysis 12
Developmentofastochasticmatrix 12
Thefundamental matrix 15
Steady-statein-processinventories 16
Expectedoutputsofgoodanddefective
production 18
Expectedvariablecost pershift 19
Expectedvariablecost perassembly 20
vi Contents
Standarddeviationsofgood and defective
outputlevels 21
Economics of test simplification 22
Economicsofthe 'zerodefects' approach 23
3 CreditManagementandMarkovChains:
PartialBalanceAgingMethod 27
Primary Reference:Corcoran (1978)
3.1 Stryford Ltd 27
3.2 Analysis 28
Developmentofastochasticmatrix 28
Combiningmatricesbyexponentialweighting 32
4 CreditManagementandMarkovChains:
ModifiedTotal BalanceAgingMethod 3S
Primary References:Cyert, Davidsonand
Thompson (1962); van Keulen, Spronk and
Corcoran (1981)
4.1 MichelskyLtd 35
4.2 Analysis 37
Modifiedtotalbalanceaging 37
Expectedvalue ofreceipts 39
Standarddeviationofbad debts 41
Presentvalue of receipts 42
Steady-stateinvestmentindebtors 42
5 LinearProgrammingand Decisionson Internal
v.ExternalPurchasesofServices 4S
Primary Reference: BakerandTaylor (1979)
5.1 KnockshinnockMines Ltd 45
5.2 Analysis 47
Offer tosupply electricity 47
Offer tosupply electricityand water 50
6 LinearProgramming, OpportunityLossesand
expostBudgeting S2
Primary Reference:Demski (1967)
6.1 AraquePerfumesLtd 52
6.2 Analysis 55
Introduction 55
Contents vii
Traditionalvarianceanalysis 56
Expostvarianceanalysis 58
Intra-periodrelationships 61
Shortcomingsoftheexpostapproach 66
7A Input-OutputAnalysisandLinear
Programming 69
PrimaryReference:Feltham (1970)
7A.1 TaumorIndustries 69
7A.2 Analysis 72
Computationof variable costs 72
Solutionbylinearprogramming 76
7B Input-OutputAnalysis andLinear
Programmingwith Purchasable Intermediate
Productsand Joint Final Products 79
PrimaryReference: Feltham (1970)
7B.1 SalmedgeProducts 79
7B.2 Analysis 82
Formulationandsolutionbylinear
programming 82
8 Use ofInformationTheory toIsolate
SubstantialVariances 86
PrimaryReference:Lev(1969)
8.1 HevershamHorticultureLtd 86
8.2 Analysis 87
Fundamentalsofinformationtheory 87
Fromprobabilitiesto proportions 89
Geographicalvariationinaproduct'ssales 91
Variationofsalesbyproductfor agiven area 92
Univariatevariances 93
Breakdownto individualareasandproducts 94
9 The Single-periodCost Variance Investigation
Decision 97
PrimaryReferences:Capettiniand Collins (1978);
Dyckman (1969)
9.1 AlstonGlassworks 97
9.2 Analysis 99
viii Contents
Establishmentofterminology 99
Break-evenprobabilities 100
Revisionofpriorprobabilities 101
The quadraticequation approach 104
Expectedcostfor adecision rule 107
10 TheMulti-periodCost VarianceInvestigation
Decision 109
Primary Reference: DittmanandPrakash (1978)
10.1 Fitzroy PaperProducts 109
10.2 Analysis 112
Introduction 112
AcontrolledMarkovprocess 113
Steady-stateprobabilities 116
Determininglong-termaveragecost per
period 117
Costswithextremalpoliciesand with perfect
information 119
Solvingthe Fitzroyproblem 119
Approximation tooptimalityofafixed
decisionrule 121
11 Stochastic Cost-Volume-ProfitAnalysisand
Decision Theory 123
Primary Reference:Jarrett (1973)
11.1 WilliamLehmanTimberLtd 123
11.2 Analysis 125
Eliminationofthe DD plantoption 125
Posterioranalysis 126
Preposterioranalysis 128
12 Stochastic Cost-Volume-ProfitAnalysis:
SatisficingwithShortProductLives 132
Primary Reference:IsmailandLouderback (1979)
12.1 KnowsleyMedical Products 132
12.2 Analysis 136
Introduction 136
Maximisation ofexpectedprofit 136
Analysisoffinancial risk 139
Maximisingthe probabilityofsatisfactory
profit 141
Fixedcostchanges and satisficingdecisions 143
Contents ix
13 StochasticCost-Volume-ProfitAnalysis:
Choice AmongCombinationsofProducts 145
PrimaryReference:Dickinson (1974)
13.1 BarrowGurney OrchardsLtd 145
13.2 Analysis 147
Choice ofastrategy 147
Confidencelimitsforthe break-even
probability 150
14 Short-termInvestmentofCash Balances 153
PrimaryReferences:Mao and Sarndal (1978);
Punter(1982)
14.1 AlvorDevelopments 153
14.2 Analysis 155
Introduction 155
Simplifyingfrom the probability tree 155
Expectedreturnsforalternativematurities 161
Dynamicprogramming 164
15 PaymentsNetting inMultinationalCash
Management 169
PrimaryReference:Shapiro (1978)
15.1 LintockCorporation 169
15.2 Analysis 171
Introduction 171
Paymentsnetting 171
MathematicalprogrammingandtheLintock
problem 173
16 The LearningCurveandFinancialPlanning 177
PrimaryReferences:Harvey (1976); McIntyre
(1977)
16.1 HoltElectronicsPLC 177
16.2 Analysis 179
Introduction 179
Computingthe break-evenlevelwithasingle
productionline 181
Computingthe break-evenlevelwithmultiple
productionlines 183
