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Chap007 case study - Chapter 07 Cost Allocation Departments...

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Chapter 07 - Cost Allocation: Departments, Joint Products, and By-Products Chapter 7 Cost Allocation: Departments, Joint Products, and By- Products Cases 7-1 Southwestern Bell Telephone (Revenue Allocation) 7-2 Brookwood Medical Center (Cost Allocation) 7-3 Business Services Corporation Readings 7-1: “Managing Shared Services with ABM” by Ann Triplett, Jon Scheumann, Strategic Fn- ance (February 2000). This article outlines the benefits of using shared services (i.e., finance and accounting services) in large companies such as Ford Motor Company, Sun Microsystems and Marriott. There is also a discussion of how activity-based management (ref: chapter 4) is used to manage the costs of these shared services. Discussion Question: 1. How do concepts for cost management of shared services differ from the concepts and methods presented in Chapter 7? 2. Who are the customers referred to in the article? 3. What do you think is the best way to manage the costs of shared services such as finance and accounting? 7-2 “Simpler than ABC New Ideas for Using Microsoft Excel for Allocating Costs” by Craig Keller, Management Accounting Quarterly (Summer 2005), Vol. 6, No.4 This article looks at a new method for service department cost allocation using Excel. It includes import- ant tips about making a useful Excel spreadsheet and it also factors in alternative methods to compare against accounting for service department costs. Discussion Questions: 1. Define an argument against the use of service department allocations. 2. In what cases should service department allocations be used instead of activity-based costing? 3. What are some key factors in making a useful Excel worksheet? 4. Explain why the matrix method can be seen as more efficient than the traditional method. 7-1
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Chapter 07 - Cost Allocation: Departments, Joint Products, and By-Products 7-1 Southwestern Bell Telephone In the fall of 1989, the Texas Division of Southwestern Bell Telephone Company (SWBT) was facing consider- able earnings uncertainty. Nine months had passed since the Texas Public Utilities Commission (PUC) had initiated an inquiry into SWBT’s earnings in Texas. The Company was trying to negotiate a settlement but was having diffi- culty reaching an agreement with the commission staff and other interested parties. One group was proposing a de- crease in SWBT revenues that would result in a 76% reduction in the company’s Texas revenues and adversely af- fect Southwestern Bell Corporation’s stock price. At the same time that the PUC was investigating alleged overearnings related to SWBT’s Texas intrastate oper- ations, company officers in Texas were trying to meet budgeted net income objectives. These targets were necessary to keep earnings growing at a conservative yet steady rate. With actual data already available for much of the year, it was apparent that the overall target for 1989 might not be met. One of the main causes of this probable shortfall was the decrease SWBT was experiencing in revenues from long distance telephone calls. This decrease was due largely to increased payments in the form of settlements to other local exchange telephone companies in Texas. SWBT’s
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