IMA Educational Case Journal
Volume 1, Issue 1
Hammond Cards, Inc: The Creative Acquisition
Paul Mulligan, Alfred Nanni, Jr., and Shahid Ansari
This case is designed to show the interconnection between operations, markets, and strategic cost man¬agement. Hammond Cards is thinking of acquiring Creative Designs for operational synergies. The two com¬panies have similar manufacturing operations but different distribution channels and customers. Hammond produces simple greeting cards that are sold through mass market retailers such as Wal-Mart. Hammond’s business model is low margin high volume. In contrast, Creative Designs specializes in so-called studio cards. These are high-end greeting cards sold individually at retail. The students have to analyze the expected benefits from the merger. The case requires students to evaluate the operations of both firms including cycle time, demand fluctuations, and quality management. The analysis reveals that the merger is a good idea but not for the original motivation for this decision. The case asks students to develop a post merger plan for how to use the joint production capacity and how to exploit the two markets.
Keywords: operations analysis, activity based costing, process analysis, operations strategy, and channel profitability.
Mercedes-Benz All Activity Vehicle (AAV)
Accounting systems (both financial and cost) typically focus on costs incurred in the past. For example, the general ledger system is used to record, summarize, and report the effects of past transactions. Using historical costs, many cost management techniques focus on understanding the cost of producing a good or service. Alternatively, target costing is a technique that requires managers to forecast the expected selling price of a product and then subtract a required profit margin. The net result is called a target cost. The intent of target costing is to allow managers to proactively control costs during the design and development phases. The Mercedes case documents the target costing process used by Mercedes-Benz U.S. International.
Keywords: target costing, function groups, and cost reduction.
A fictional example demonstrates the danger of using fully allocated costs, even ABC, to determine the profitability of a newly proposed product line. Using marginal costing improves the solution but does not fully consider the option of increasing capacity. In order to determine whether capacity should be increased additional analysis must be done that focuses on the best way to use constraints and simultaneously balance demand against risk. The main focus of the case is the behavior of step-fixed costs. Capacity usually must be purchased in lumps that are rarely divisible. Students seldom have the opportunity in cases to deal with step-fixed costs and changing capacity. This case allows them to do both.
Keywords: activity-based costing, target costing, constraints, step-fixed costs, capacity, and profitability analysis.
Measuring and Controlling Value Created in Endesa
Gary M. Cunningham and Scott Eriksen
As companies move through the decade of the 2000s, creating value for customers, shareholders, and other stakeholders has become an important objective in a globally competitive environment. This case uses the experience of a major multinational company based in Spain to develop a measurement of economic value created (EVC) as a surrogate within its management control system. The focus is not on ENDESA per se, but ENDESA as a vehicle to explore issues related to management control of value. Part A of the case focuses on financial management issues, involving computation of the metric based on cash flow, but also involves invested capital and the weighted average cost of debt and equity capital. Part B focuses on account¬ing and financial reporting issues and the interaction of management control systems with financial reports. The two parts of the case can be used independently.
Keywords: economic value, cash flow, invested capital, weighted average cost of capital, US GAAP, IFRS, and multinational accounting standards.
Coors Balanced Scorecard: A Decade of Experience
Hugh Grove, Tom Cook, and Ken Richter
After Coors reengineered its supply chain, it decided to track this project’s progress by implementing a company-wide balanced scorecard (BSC), starting in 1998 and continuing to the present. The case’s major decision problem is how to develop a BSC for Coors. To start the BSC process, students first assess whether there are any gaps between Coors’ vision statement and its key business strategies. The students then answer the employees’ frequently asked questions (FAQ’s) about Coors’ BSC project and construct a BSC that includes benchmarking targets and reporting frequencies for key performance measures. Finally, the students are asked to identify the FAQ’s and key performance measures that were critical to Coors’ successful implementation and application of its BSC over the last decade. Lessons learned are also discussed.
Keywords: balanced scorecard, performance measures, and benchmarking.