Fall 2013

University of Alberta, School of Business

Department of AOIS

ACCTG 426
Management Control Systems

Section A2: M W 12:30-13:50

BUS B-05
Instructor: Jocelyn King
E-Mail: jocelyn.king@ualberta.ca
Phone: 780-492-4611
Office: Bus 1-27A
Office Hours: M W 11:00 12:00

Pre-requisites
Students must have completed Accounting 424. This course is only open to fourth
year students

Course objectives and organization

The objectives of this course are:
1. To review and apply in practical settings some key management
accounting concepts. In general, you will be assumed to have already
acquired a basic understanding of the relevant management accounting
concepts and techniques.
2. To develop your communications skills by means of discussion,
presentations, and case reports.
3. To help bridge the gap between highly structured and oversimplified
typical textbook problems (where many factors bearing on a problem are
held constant or excluded) and the complex real world where it is often
difficult to identify best solutions to problems, and sometimes difficult even
to identify the precise nature of the problem or its causes.
4. To integrate knowledge and concepts introduced in various business
courses, such as strategy, organizational analysis, finance and operations
management.
Although many students in this course aspire to a career in accounting, those
interested in general management should also find it useful. Accountants are
expected to provide expert advice to management on the design and
implementation of management information, planning and control systems;
however, managers themselves should be aware of which management
information is most relevant, and how that information is developed and used.
The course focuses on cases that deal with management's need for information for
planning, control and decision-making. Students should be familiar with the topics
underlying the cases. Students should refer to chapters in their textbooks from
their prior management accounting courses where necessary.
During the term, most class days will be devoted to case discussion. You are
expected to be fully prepared for each case. Other classes will be used to
undertake presentations, discuss readings, and explore topics in management
control.
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Text
Merchant & Van der Stede,
Management Control Systems,
3nd Edition, (Prentice Hall,
2012)

Useful Additional Resources

Cost Accounting:
A Managerial
Emphasis, Fifth
Canadian Edition,
by Horngren,
Foster, Datar, and
Gowing. Pearson
Education Canada
Inc., 2010.

Effective Writing: A
Handbook for
Accountants 9th
edition, Prentice Hall,
2012) by May, C.B., &
G. S. May

Goals
The following are the expected learning outcomes or this course. Student by the
end of the course will have learned and demonstrate the ability to perform the
following
Analysis and Critical thinking
Read, summarize and critically evaluate issues relating to managerial
accounting and control systems.
Use an organized approach to analyze the issues facing a firm
Provide practical recommendations giving due consideration to the
environment and strategy of the firm.

Milestones
Introductory Case report is
due on Sept. 18, 2013
Report 1 chosen from
cases 1-5
Report 2 chosen from
cases 6 -9
Report 3 chosen from
cases 10 -14

Communication
Effectively present one group presentation on a topic from the course.
Engage in in-class discussions providing effective input.
Effectively communicate ideas to a client in case reports.
Integrity/values
Act with academic integrity.
Understand ethical issues.
Respect for others (and their ideas) in case discussions.
Project management
Self-regulation and team work skills

Evaluation
Your evaluations will be based on the verbal definitions given in the university
calendar, which states that A+, A and A- represent excellent performance, B+, B
and B- represent good performance, and C+, C and C- represent satisfactory
performance. Unfortunately grade inflation has somewhat eroded these
definitions, such that few students would now consider a C as satisfactory.
In an attempt to achieve some uniformity in marking across the different cases and
presentations, I employ the following approach. I will anchor at a B. This
represents a good, solid performance with no significant problems, i.e. a 'good
performance' that would translate into a B if repeated on every submission. You
will be rewarded for submissions that are exceptionally insightful, thorough,
creative, or well-written (corresponding to the term excellent attached to the
higher grade categories). Your evaluation will be evaluated down for significant
omissions, errors, or superficial or poorly written analyses.

Group Work
Students will form groups of four members. These groups will be responsible for
preparing your the four written cases to be submitted; however, the case groups
are not required to work together on the in-class discussions, although I think that
is a good way of exploring and developing your ideas, analysis of problems and
suggested solutions.
2

Mark Distribution
Group Intro Case
Report
5%
Group Case Reports
(3 reports, 15% each) 45%
General Participation 15%
Individual Final Exam 35%
Total
100%

In choosing your group members, try and select people that are responsible and
that you can work with. In addition, you may wish to consider your schedules, so
that all group members have some common time available for preparing cases.
PLEASE NOTE: IF A GROUP MEMBER IS NOT PULLING HIS/HER
WEIGHT YOU ARE FREE TO LEAVE THEIR NAME OFF OF A
SUBMISSION OR FIRE THE PERSON. Do not feel bad about doing this if a
person suggests that they will fail if you fire them, since I will offer the person an
alternative. Details will be discussed during the first class.
Hints on working with Groups:
http://businessmajors.about.com/od/studentresources/a/GroupProjectTips.htm
http://collegelife.about.com/od/academiclife/ht/GroupWorkTips.htm
http://homeworktips.about.com/od/teamwork/a/projectorganizer.htm

Case Reports
All groups are required to submit three written case reports electronically, in
addition to the introductory case report (four cases in total). Case reports are
limited to five typed double spaced pages (using Arial font size 12pt, or
equivalent), although exhibits can supplement the report. This is a tight page
constraint, but in business superiors want succinct, clear and well organized and
reasoned reports. But use full sentences and avoid bullet points. Most reports can
be significantly reduced through editing, and I suggest that in preparing your case
reports you should not aim for five pages immediately. You will probably do
better if you first write down what you want to say, and then edit it down to meet
the page constraint.
The introductory case report is AirTex Aviation (pp. 246). Every group will hand
in this case.
The three additional case reports will be chosen from each of the following
groups of cases; one from cases 1 through 5, one from cases 6 through 9, and one
case from cases 10 through 14 on the course outline. These case reports must be
submitted electronically prior to the start of class on the day in which that case
is to be discussed.
Case reports will be evaluated not only on content, but also on presentation
(including spelling, grammar, structure and format).

In Class Participation
All individuals are expected to fully prepare and actively join in class discussion.
You may be called to comment, critique, or lead discussion of the course material
and cases, as an individual. I encourage people to volunteer contributions; those
who readily and effectively volunteer participation are much less likely to be called
upon at random. The general discussion forms a separate component of your
mark. It also gives you an opportunity to demonstrate your understanding of the
case/material. Please do not rely on a particular group member to carry the ball
in discussion every class, because the participation grade is assigned
individually.
Participation grades involve three components; attendance, frequency of
participation, and quality of participation. Participation will be specifically
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monitored for each class. Attendance and pre-class preparation is vitally important
since this is a case discussion class. Thus, the quality of the class will, to a
significant extent, be dependent on your preparation, attendance, and
participation. If you fail to attend class you are obviously not participating. If you
arent prepared for class the quality of your participation will be severely lacking.
See additional comments on participation below.
A NOTE ON PARTICIPATION:
As discussed above a participation grade will be included in your final mark. The
following section provides additional information on how the oral portion of your
participation mark will be assessed.
First, the participation mark is not allocated using the number of words spoken as
a base. While regular participation is a factor, the content and timing of one's
participation is more critical. Good content involves relating one's comments to
the subject at hand. The ability to incorporate a concept from relevant readings,
from other courses, or using particular evidence from the case to support one's
position, is preferred to a comment offered off the top of one's head. One
particularly insightful comment, reference, calculation, or conceptual application
of relevant material can often be the most valuable contribution made in a session.
The timing of remarks is also important. Individuals who demonstrate attentive
listening, by developing the ideas of others, make a significant contribution not
only through their comments but also by facilitating the learning process of
everyone in the class. This can be done by extending ideas, proposing variations,
outlining inconsistencies, or suggesting alternatives. Such efforts are generally to
be preferred to comments, which may be thoughtful in terms of content but ill
timed in relation to the ongoing discussion in the class. Repeating what has
already been discussed is wasting class time.
There are certain behaviours, which can contribute to a poor discussion and as
such can (and will) be viewed as negative participation. The first is a lack of
courtesy. If you expect others to be quiet and attentive while you are speaking,
please extend this courtesy to all participants. Some individuals will have had little
experience with oral presentation of their ideas and may be apprehensive. They
will be more encouraged to participate if they do not have to compete with
background conversations.
Some students believe that simply attending class without participating in
discussions is sufficient. This is not the case. A student who attends all classes and
never participates will not receive a passing grade on their participation.
Other potential problems are absenteeism and tardiness. Clearly, one cannot
participate if one is not present. Individuals who are late interrupt the session upon
their arrival and generally do so again by either pestering their seatmates for a
recapitulation or by raising an issue dealt with earlier in the class. Individuals
expecting to be late or absent should attempt to contact me prior to the class.
It is my hope that the discussion portion will be relatively informal. People should
feel free to interject witty comments or even some good-natured heckling, with the
one provision that they be shared with the entire class. I hope that if we all come
prepared each week that the experience will be both pleasant and rewarding.

Final Examination
If a student is absent from the final exam, he or she must obtain permission from the
Facultys Undergraduate Office to write a deferred final exam. Deferred final
examinations will be allowed only for students following University procedures for
obtaining deferrals. Students who feel that they need to miss the scheduled final
examination must consult the Undergraduate Office. For more information on deferred
exams, go
to: http://www.bus.ualberta.ca/BCom/Current/PolicyProcedures/deferredexams.htm#1
, or see section 23.5.6 of the University Regulations and Information for Students in the
University Calendar. If a deferred final exam is required for this course, it will be held on
a mutually agreed date and time.

Code of Student Behaviour

Students attention is drawn to the Code of Student Behaviour, which addresses
plagiarism, cheating, and aiding and abetting. A copy of the Code can be obtained
at http://www.ualberta.ca/~unisecr/. If you have any questions regarding this
matter please talk to the instructor or the Undergraduate Office. Ignorance is
NOT a defense!!

Classroom Etiquette
Courtesy to the instructor, and to other students, is an important part of every
class. Because some kinds of behaviour are distracting to both the instructor and to
other students, it is expected that students:
a)
b)
c)
d)

will arrive in class before it begins, and will stay until it is over;
will not engage in side conversations with other students;
will not read non-course materials; and
will not use personal communication or entertainment devices in class.
This includes computers used for those purposes, mp3 players, cell
phones, iphones, Blackberries, etc.

If arriving late or leaving early on a specific date is unavoidable, please inform the
instructor.

Course Outline
DATE
Sept. 4

Sept. 9
Sept.11
Sept.16
5

TOPIC
Introduction- to the course and
to Management Control
Systems
Case Analysis The Basics
Case Analysis - Case Walkthrough and discussion
Lecture: Overview of course
perspectives

READINGS

CASES

Merchant 2002, posted on

ULearn
Rivendale University, posted
on ULearn
Chapters 1 & 6; Simons
1996.

Sept.18

Sept. 23 Results Control

Sept 25 Action Controls

Chapters 2 & 4. Kohn 1995.

Chapter 3.

Sept. 30 Cultural Controls

Chapter 5.

Oct. 2
Oct 7

Lecture: Responsibility Centres

Financial responsibility centres

Chapters 7 & 9

Oct 9

Transfer pricing

Eccles, 1983

Oct. 14
Oct. 16

NO CLASS (Thanksgiving)
Lecture: Budgets and Beyond
Budgeting

Oct. 21

Budget processes

Oct. 23

Target setting and incentives

Oct. 28

Lecture: Performance
Chapters 10, 11 & 12
Measurement
ROI/ROA based Performance
Measures
NO CLASS (Stat Holiday)
RI/ EVA based Performance
Measures
Controllability and subjectivity in
performance measures
Scorecards
Kaplan and Norton, 2008

Oct. 30
Nov. 11
Nov. 4
Nov. 6
Nov. 13

Nov.18

Applying the Perspectives

Intro Case: AirTex, pp. 246.

All groups must submit a
case report.
Case # 1: Armco Inc. pp.41
Case # 2: Controls at the
Bellagio. pp.134
Case # 3: Alcon Labs Inc.
pp. 112
Case # 4: Kranworth Chair
Corp. pp. 275.
Case # 5: Axeon N.V. pp.
105

Chapter 8; Hansen et al,

2003; Hope and Fraser,
2003.
Case: Budgeting in the
Department of Education,
posted on ULearn.
Case # 6: HCC Industries
pp.329.

Case # 7: Las Ferreterias de

Mexico, S.A. de C.V. pp.432
Case # 8: Berkshire
Industries PLC pp. 439
Case # 9: Formosa Plastics
Group pp. 536
Case # 10: First
Commonwealth Financial pp.
466

Nov. 20

Lecture: Corporate Governance

& Ethics
Responsibilities of a CFO

Chapters 13, 14 & 15

Nov. 25

Risk management

Nov. 27

Audit committees and auditors

Dec. 2
Dec. 4
Final

Situational Influences on MCS

Chapters 16 & 17.
Summary & Final Exam Review
Monday December 16, 2013 @ 09:00

Case # 11: Don Russell:

Experiences of a
Controller/CFO, pp.627
Case # 12: Entropic
Communications, pp. 590
Case # 13: Financial
reporting problems at Molex,
pp. 605
Case # 14: Statoil pp. 487

Supplementary readings
Eccles, R. (1983). Control with Fairness in Transfer Pricing. Harvard Business Review 61 (6): 149-161.
Hansen, S., D. Otley and W. Van der Stede (2003). Recent Developments in Budgeting. Journal of
Management Accounting Research (15): 95-116.
Hope, J. and Fraser, R. (2003). Who Needs Budgets? Harvard Business Review 81 (2): 108-116.
Kaplan, R.S. and D.P. Norton (2008). Mastering the Management System. Harvard Business Review
(January): 63-77.
Kohn, A. (1993). Why incentive plans cannot work. Harvard Business Review (September-October):
54-60.
Merchant, K. (2002). The Case Method of Instruction: Suggestions for Students. University of
Southern California A202-01, 5pp.
Simons, R. (1995). Control in an Age of Empowerment. Harvard Business Review 73(2): 80-88.

CASE QUESTIONS
Note, these questions have been provided to you to give you a starting point for thinking about the cases and to help
you identify the issues being explored in the case. Simply answering these questions will not constitute a sufficient
response to the case. For cases 10- 14, no questions have been provided as I expect you to be identifying the issues on
you own by the end of term.
AirTex Aviation
1.

Did AirTex need a new control system at the time of the takeover?

2.

Evaluate the control system that Frank and Ted implemented. Should anything have been done differently?

Case #1
1.

What was wrong with the Midwestern Steel Divisions old system? (As part of your analysis, study Exhibit 3
carefully and figure out what the columns tell you, individually and in total.)

2.

If the old system was so bad, why did the operating managers seem to like it?

3.

Evaluate the new system and the way in which it was being implemented. What changes would you
recommend, if any? Why?

4.

What should Rob Cushman do about the two items described in the Remaining Issues section of the case?

Case #2
1. Focus on three key roles at mainly three levels of authority in the casino blackjack dealers,
3

pit bosses, and the vice president of table games. How would you characterize the control strategy (e.g., tight vs.
loose) used over each of these roles?
2.

Prepare a list of the controls described in the case. What control problems are they designed to address? Are the

managers interviewed for the case justified in being proud of their companys control system? Why or why not?
3.

What are the implications for management control at the Bellagio of Bob Rudloffs concluding comments?

4.

Are any of the control systems in place at the Bellagio suitable for firms in other industries?

Case #3
1.

Evaluate the control environment and control system at Alcon Laboratories, Inc. What are the strengths,

weaknesses, and dangers inherent in the control systems?

2.

What changes, if any, would you suggest to Mr. Leone and Dr. Raval? How would your suggestions improve

control at Alcon Laboratories? Specifically address the concerns of Mr. Leone as they relate to the planning, budgeting,
measurement, and reporting processes that are used.
3.

How can the productivity of research and development be measured?

Case #4
1.

Identify the most important key recurring decisions that must be made effectively for KCC

to be successful. In KCCs functional organization, who had the authority to make these decisions? Who has the
authority to make these decisions in KCCs new divisionalized organization?
2.

Did KCCs top management go too far in decentralizing the corporation? Did they not go far enough? Or did

they get it just right? Why?

3.

Evaluate KCCs new performance measurement and incentive system. Assuming that KCC will retain its new

divisionalized organization structure, what changes would you recommend, if any? Why?
4. Assume that the R&D function is to be decentralized (given to the divisions). Would this necessitate changes to
KCCs performance measurement and incentive system? If so, which and why? If not, why not?
Case #5
1.

Is construction of the new factory in the UK in the best interest of Axeon N.V.?

2.

Ignoring your answer to question 1, if the plant were not built and AR-42 was shipped from

the Netherlands to the UK, what transfer price would be appropriate?

3.

What should Mr. van Leuven do?

Case #6
1.
4

Evaluate the decision to use minimum performance standard (MPS) targets instead of stretch targets.

2.

Should HCC managers have expected that the MPS target-setting philosophy would be equally effective in all
four operating divisions described? If not, what explains the differences?

3.

What should Andy Goldfarb do now?

Case #7
1. What unique aspects of the Mexican environment does Fernando Gonzalez have to consider in designing and using
his management control system?
2. Identify and evaluate each of the elements of Las Ferreterias de Mexico s performance-dependent compensation
system. What changes do you recommend, and why?
3. What, if anything, should Fernando Gonzalez do about the regional salespeople and corporate purchasing?
Case #8
1.

In the case, the CLA consultants recommend against the use of stock-based incentives. If these criticisms are
valid, why do so many companies use stock-based incentive programs?

2.

Evaluate the Berkshire Industries measurement and incentive system. What would you recommend be
changed, if anything?

3.

Using Exhibits 1 and 2 to explain your answer, do you agree that CLA have provided one simple measure?
Why do you think the new system created considerable management confusion?

3.

What, if anything, should Mr. Embleton do about the problems caused by performance shortfalls in the Spirits
Division? Explain.

Case #9
1.

Identify the major elements of Formosa Plastics Groups control system.

2.

Is the Polyolefin division a profit center?

3.

Managers at Formosa Plastics Group use subjectivity to eliminate some of the effects of uncontrollable
factors from performance evaluations. Evaluate this choice. Did they have any alternatives?

4.

Are any of FPG managers control choices affected by national or cultural factors? If so, which choices
were affected and which factors affected them?