Cost Accounting & Management Control

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  1. Valuation & Accounting: You can't have one … CF1-126-B-I

    Theresa has been hired for her first job as a junior equity research analyst in an investment bank. The first assignment that her boss gives her is to help with the coverage of the oil sector. She uses a Top-down approach in the sector analysis looking at macro, sector and then company specific issues. Theresa has to decide which will be the best company to include in the model portfolio from a selection of European and American companies. To make this decision, Theresa needs to compare the financial ratios of the different companies, paying special attention to inventory ratios, which are key to the sector. Furthermore, the oil sector recently experienced an unexpected and sharp fall in the Brent price that is impacting the financial reports of the companies and their stock prices. During a coffee break, she saw a senior analyst named Bruno. They talked about her report and he warned her to check that the ratios are comparable. The case ends with Theresa recalculating her numbers and being surprised by the results.

    This case is intended for master level degrees. The case "The Oil Sector: The importance of inventory ratios" is similar, but intended for undergraduates, if that's your target.

    Academic Area:
    Financial Accounting | Cost Accounting & Management Control
  2. The Oil Sector: The importance of inventory ratios CF1-126-A-I

    Theresa has been hired for her first job as a junior equity research analyst in an investment bank. The first assignment that her boss gives her is to help with the coverage of the oil sector. She uses a Top-down approach in the sector analysis looking at macro, sector and then company specific issues. Theresa has to decide which will be the best company to include in the model portfolio from a selection of European and American companies. To make this decision, Theresa needs to compare the financial ratios of the different companies, paying special attention to inventory ratios, which are key to the sector. Furthermore, the oil sector recently experienced an unexpected and sharp fall in the Brent price that is impacting the financial reports of the companies and their stock prices. During a coffee break, she saw a senior analyst named Bruno. They talked about her report and he warned her to check that the ratios are comparable. The case ends with Theresa recalculating her numbers and being surprised by the results.

    This case is intended for undergraduates. The case "Valuation & Accounting: You can't have one without the other" is similar, but intended for master degrees, if that is your target.

    Academic Area:
    Financial Accounting | Cost Accounting & Management Control
  3. The Terminus Hotel (A) CG1-130-A-I

    The “Terminus” Hotel, a 200-room facility, is located within the city walls of one of the most impressive medieval towns in Southern Europe. As consequence of poor management and old-fashioned interior design, the Hotel experienced slumping demand since 2001. In 2004, the Hotel was on the brink of bankruptcy.  In a sudden, these dark prospects turned into hopeful ones; the Hotel was located on a historic building and the regional authorities approached Mr. Leo D. Marcial, chair of the Chamber of Commerce, to mobilize local entrepreneurs in order to take over hotel ownership. 

    This case presents the opportunity to do a profitability analysis of Hotel Terminus, which after a general renovation has once again opened its doors to guests. This analysis is motivated by poor results, that even though they were planned to be in red numbers, the losses are larger than expected. The hotel offers three distinct services: accommodation, restaurant and entertainment (flamenco).

    For the writing of this case, several bits of data have been modified to protect the identity of the company.

    Academic Area:
    Cost Accounting & Management Control
  4. The Terminus Hotel (B) CG1-130-B-I

    The “Terminus” Hotel, a 200-room facility, is located within the city walls of one of the most impressive medieval towns in Southern Europe. As consequence of poor management and old-fashioned interior design, the Hotel experienced slumping demand since 2001. In 2004, the Hotel was on the brink of bankruptcy.  In a sudden, these dark prospects turned into hopeful ones; the Hotel was located on a historic building and the regional authorities approached Mr. Leo D. Marcial, chair of the Chamber of Commerce, to mobilize local entrepreneurs in order to take over hotel ownership. 

    This part B analyzes a particular situation related to a couple of tour operators that propose to the hotel a regular booking of rooms per day, however at a discounted cost. This possibility was refused because of a recommendation of the accounting department, together with a later proposal with similar terms, though with a lesser discount. This short case offers information on fixed and variable costs and more information to analyze why management took this position so that the student can analyze it to agree or disagree on it.

    Academic Area:
    Cost Accounting & Management Control
  5. white nights CG1-144-I

    In this practical case, students are presented with the challenge of evaluating the financial viability of an event for an art exhibit. Students are asked to determine the viability of the event given data, perform a break even analysis, calculate the maximum profit that can be generated, and consider the impact of segmenting the market based on ticket prices. This case serves well for putting general management accounting concepts into practice and gives students the opportunity to interpret analysis in a meaningful way.

    Academic Area:
    Cost Accounting & Management Control
  6. Cost or Expense? CG2-124-I-M

    Cost or Expense? is an interactive technical note with the overriding objective of clarifying the concepts of costs and expenses in a company. The documentation is based around a decision-making diagram which attempts to structure the classification process.

    An exercise section is included in which students can test their knowledge classifying elements for different types of companies. The material also includes a game where the student competes against the clock.

    Academic Area:
    Cost Accounting & Management Control
  7. Enred@me CG1-131-I

    enRED@me is a social network designed to meet the needs of more mature Internet users. Users create a profile and participate in conversations in groups, creating community and friendships on a virtual platform. One of the challenges for the creators of this social network platform is how to monetize the process is a sustainable manner, especially as competitors begin to enter the market.
    In this case, students are confronted with the challenge of how to structure the pricing and costs of an online platform in a way that produces sustainable profitability.
    This case includes practical exercises that require students to link conceptual knowledge of management accounting procedures to real numbers. It challenges them to propose a solution which meets the goals and needs of the company.

    Academic Area:
    Cost Accounting & Management Control
  8. SET THE CONTROLS FOR THE HEART OF TELECOM CG1-129-I

    The main objective of the case is to discuss how to account for active investments in other companies according to International Accounting Standards. The application of IAS 27-28-31 is put to test due to the peculiarity in the ownership structure.

    The case tells the story of the investment that Pirelli made into Olivetti and Telecom Italia between 2001 and 2006. Olivetti was a manufacturer specialized in computers and printers, whereas Telecom Italia is the dominant telecommunication company in Italy. Olivetti was acquired by Pirelli&C and Edizione Holding S.p.A through a vehicle company (Olimpia S.p.A). Pirelli&C is a leader as manufacturer of tires and cables, whereas Edizione is a financial holding that controls the Benetton Group. Both buyers represent part of the Italian economic leadership. In fact, Pirelli&C and Edizione Holding are the financial wings of two Italian industrial families Pirelli (whose leader is Mr. Marco Tronchetti Provera) and Benetton (with Mr. Gilberto Benetton as its leader).

    The Italian corporate governance system is well suited for this case because of three distinguishing factors: pyramidal structure, interlock of directors and shareholders’ agreements. They are all present in the case. Within this system, it is possible to control a listed company without being the majority shareholder. A situation like this is therefore an interesting case to test how to apply International Accounting Standards on consolidation.

    Academic Area:
    Cost Accounting & Management Control
  9. Clínica Santa Sofía CG1-125-I

    Felipe Izcaray, the new general manager of the Clínica Santa Sofía in Madrid, a hospital specializing in gynecological and pediatric care, was put in charge of improving management and increasing profitability. Although the company was well-managed in terms of processes, it did not have its objectives clearly defined. Although the company has improved in terms of operational efficiency and cost control, their profits had not gone up. Izcaray decided to hold a meeting with the Board of Directors to present his analysis of hospital management. He proposed making changes in the departmental structure and drawing up a new department-by-department organizational chart, providing 24-hour emergency service and treating customers in a way that their stay is a true pleasure. The conclusions from the meeting were that profitability needed to be increased by attracting high-value customers, comprehensive service needed to be provided in order to achieve cross-sales to the customer, they needed to continue arrangements with the public health system, and to improve the clinic’s reputation. The clinic’s new management committee then got together to draw up a strategic control chart. The committee was made up of managers from different departments who did not totally agree on what the clinic’s strategy should be and who all had different concerns. The managing physician emphasized that although the company was seeking profitability and economic results, they could not spare measures or restrict the use of resources. They needed to avoid giving precedence to profitability above patient health. The head of sales and public relations also mentioned that excellent service is important since word of mouth will get them new customers and positive references could create cross-sales. The nurse mentioned that the employees’ level of satisfaction also needed to be taken into account to achieve a low turnover. Someone else mentioned that they could use referrals from renowned physicians or public figures to gain more customers. When the head of management control brought up reducing costs, the managing physician strongly disagreed and said he would not ask professionals to concern themselves with cross-sales, bed turnover, etc. Izcaray knew that the support of the managing physician was essential. He needed to be sensitive to ideas from all the areas and reorient those that did not fall within the objectives of the company in order to prepare and implement a strategic control chart. The case discussion is centered in the difficulties of balancing profitability with excellent healthcare service.

    Academic Area:
    Cost Accounting & Management Control
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