Answer EITHER Question 1 OR Question 2.
The word length is 1,500 words excluding references and appendices.
Question 1
a) What is value based management? (20% of the marks for this essay)
b) Explain how EITHER the Balanced Scorecard performance measure OR the Economic Value Added performance measure is consistent with the objectives of value based management (30% of the marks for this essay).
c) To what extent does the empirical evidence show that the performance measure discussed in part 1b) achieves the objectives sought by value based management? (50% of the marks for this essay)
Suggested Reading List: The following list of suggested references is not intended to indicate a required list of references or a complete list of references, but rather as suggested readings that may contribute to your reading around the topic of the question.
Desai, M. & Ferri, F. (2006) Understanding Economic Value Added Harvard Business School note number 9-206-016.
Eccles Robert, G. (1991) “The Performance Measurement Manifesto” Harvard Business Review, Viol. 69 No. 1:131-137.
Holmstrom, B. (1979) ‘Moral Hazard and Observability’ Bell Journal of Economics Spring (1979:74- 91).
Ittner, C. & Larcker, D. (2001) ‘Assessing empirical research in managerial accounting: A Value Based Management Perspective’ Journal of Accounting and Economics Vol. 32:349-410.
Ittner, C., Larcker, D. & Meyer, M. (2003) ‘Subjectivity and the Weighting of Performance Measures: Evidence from a Balanced Scorecard’ The Accounting Review Vol. 78 No. 3:725-758
Kaplan, R. & Atkinson, A. (2014) Chapter 8 “The Balanced Scorecard: Measuring Total Business Performance” and Chapter 10 “Financial Measures of Performance: Return on Investment and Economic Value Added” in Advanced Management Accounting 3rd ed.
Merchant, K. & Van der Stede, W. (2019) “Performance Measurement Issues and their Effects”, Section IV in Management Control System, 4th Ed.
Meyer, M. (2003) Rethinking performance measurement: Beyond the balanced scorecard (Available as e-book through the LSE library).
Meyer, M. & Gupta, V. (1993) ‘The Performance Paradox’ Research in Organizational Behaviour Vol. 16 p. 309 – 369, especially pages 325 – 353.
Simons, R. (2000) Performance Measurement and Control Systems for Implementing Strategy Stewart, G. (1991) The Quest for Value chapter 4: ‘The EVA Financial Management System’ Case: Citibank (9-198-048)
Case: Vyaderm Pharmaceuticals (case number 9-101-019)
Question 2
a) Compare and contrast the following two costing techniques: i) absorption costing and ii) activity based costing. (50% of the marks for this question)
b) How might behavioural theory and economic theory be used to explain why managers select one rather than another of these costing techniques? (50% of the marks for this question).
Suggested Reading List:
The following list of suggested references are not intended as mandatory list or as an exclusive list of references, but rather as suggested readings that may contribute to your reading around the topic of the question.
Bhimani, A., Hongren, C., Datar, S. & Rajan, M. (2012) Management and Cost Accounting, 5th ed., Chapter 5: “Cost Allocation”.
Cooper, R. & Chew, B. (1996) “Control Tomorrow’s Costs Through Today’s Designs” Harvard Business Review (January – February)
Holmstrom, B. (1979) ‘Moral Hazard and Observability’ Bell Journal of Economics Spring (1979:74- 91).
Kaplan, R. (1984) “The Evolution of Management Accounting” The Accounting Review Vol. 59, No. 3: 390-418
Kaplan, R. & Atkinson, A. (2014) Chapter 4: “Activity Based Cost Systems” and Chapter 5 “Activity Based Management” in Advanced Management Accounting 3rd ed.
Labro, E. (2006) “Analytics of Costing System Design” p. 217-242 in Bhimani, A. ed. Contemporary Issues in Management Accounting (Available as e-book through the LSE library).
Behavioural theory
Argote, L. & Greve, H. (2007) ‘ “A Behavioural Theory of the Firm”: 40 Years and Counting: Introduction and Impact’. Organization Science Vol. 18 No. 3: 337-349 (Please also see the other papers in this special issue of Organization Science on the behavioural theory of the firm).
Cyert, R. & March, J. (1963) A Behavioural Theory of the Firm
Gavetti, G. Levinthal, D. & Ocasio, W. (2007) ‘Perspective—Neo-Carnegie: The Carnegie School’s Past, Present, and Reconstructing for the Future.’ Organization Science Vol. 18, No. 3:523-536
March, J. (1987) ‘Ambiguity & Accounting: The Elusive Link Between Information and Decision Making’ Accounting, Organizations & Society Vol. 12, No. 2:153-168
Behavioural approaches to costing
Hiromoto, T. (1988) “Another Hidden Edge – Japanese Management Accounting” Harvard Business
Review (July – August)
Merchant, K. & Shields, M. (1993) “When and Why to Measure Costs Less Accurately to Improve
Decision Making” Accounting Horizons Vol. 7 No. 2:76-81 Case: John Deere A and B (9-187-107 and 9-187-108)
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