ACC501 cs1, cs2, cs3, cs4, and cs5

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Please review the below essays for completion 21 July 2011 midnight. Price 200 dollars for 15 pages minimum double space courier new 12 font. Kindly accept and separate each acc501cs1, cs2, cs3, cs4, and cs5.

ACC501CS1 (3 to 5 pages double spaced courier new 12 pt font)

Case assignment expectations:

This case will give you experience in the format of our case method.

You will begin by learning about financial accounting standards and current trends. Further, you are introduced to the annual report, which typically includes the audited financial statements. The submission should be 3-5 pages typed and double-spaced.

The following items will be assessed in particular:

There are two parts to this case.

Part I. Search the Internet. Discuss each of the following terms or concepts and their significance for the preparation of financial statements. In addition, comment on how the five terms or concepts below relate to each other.

1. Generally Accepted Accounting Principles (US GAAP)

2. International Financial Reporting Standards (IFRS)

3. Norwalk Agreement (October 2002)

4. Generally Accepted Auditing Standards

5. International Auditing and Assurance Standards

Part II. Refer to the following three sets of annual reports which contain the financial statements. Use the latest financial statements -- for the year 2010, if available. First read an overview of the company so you are familiar with the company, its products/services and markets and then review the annual report and supplemental financial statements.

1. Apple, Inc. http://investor.apple.com/financials.cfm

2. Swatch Group http://www.swatchgroup.com/en/investor_relations/annual_and_half_year_reports

3. Nikon http://www.nikon.com/about/ir/ir_library/ar/index.htm

Required:

1. Briefly comment on the companies, the appearance and presentation of the annual reports.

2. How the terms and concepts defined in Part I affect the information reported the financial statements listed above?

3. Make three comparisons and reach three conclusions about each company from the financial information you find in the annual report. Prepare a table to summarize your findings.

4. Briefly comment on the ability to compare and contrast the information in your table.

ACC501CS2 – (3-5 pages typed and double-spaced courier new 12 font)

Case assignment expectations:

Cost Volume Profit Analysis and Costing for the 21st Century

Read all the required readings in the background materials about Cost Volume Profit Analysis. Make sure you understand this method and the breakeven analysis which goes with these concepts.

(n.a.) Calculating the Break-Even Point and the Contribution Margin, Tripod.com. Retrieved from: http://members.tripod.com/devryproject/BreakEven.htm

These site have detailed slide presentations of cost-volume-profit analysis.

Cost-Volume-Profit-Analysis, Retrieved from:

http://www.slideshare.net/brianna1405/cost-volumeprofit-relationship

http://www.slideserve.com/presentation/24847/Cost-Volume-Profit-Analysis

Review this site for a discussion on the preparation of a contribution form of income statement.

(n.a.) (2011)Contribution Margins, Small Business Owners Toolkit. Retrieved from: http://www.toolkit.cch.com/text/P06_7520.asp

Here is an excellent resource on CVP. Be sure to study all the links and samples.

(n.a.) (2011) Cost Volume Profit Relationship, Accounting for Management Retrieved from: http://www.accountingformanagement.com/cost_volume_profit.htm

Now carefully read the following article:

Costing in new enterprise environment: A challenge for managerial accounting researchers and practitioners

Krishan M Gupta , A Gunasekaran . Managerial Auditing Journal . Bradford: 2005 . Vol. 20, Iss. 4; pg. 337, 17 pgs

Abstract (Summary)

Faced with new wealth creation paradigm, triggered by technology and relentless globalization of markets, increasing number of companies are becoming knowledge-based enterprises. This paper aims to discuss the change in enterprise environment; evolution of performance and cost measures; and the challenges for managerial accounting researchers and practitioners in developing value-based costing and performance measurement systems (PMS). A conceptual discussion and approach are taken. Internet and e-commerce have changed forever the way companies conduct their businesses. Virtual enterprise and efficient supply chain management systems will shape the future of these enterprises. Organizations are trying to become agile enterprises with the help of strategic alliances of firms and integration using information technologies. Traditional performance and cost measures are no longer suitable for developing and managing enterprises in the so-called new environment. In order to remain relevant and to add value, cost and performance measures must be designed and systematically evaluated to reduce the often-unnoticed mismatch between strategic goals and operational tactics. Suggestions are presented for future research directions in managerial accounting areas that would address the requirements of new economy enterprises.

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Copyright MCB UP Limited (MCB) 2005

[Headnote]

Abstract

Purpose - Faced with new wealth creation paradigm, triggered by technology and relentless globalization of markets, increasing number of companies are becoming knowledge-based enterprises. This paper aims to discuss the change in enterprise environment; evolution of performance and cost measures; and the challenges for managerial accounting researchers and practitioners in developing value-based costing and performance measurement systems (PMS).

Design/methodology/approach - A conceptual discussion and approach are taken.

Findings - Internet and e-commerce have changed forever the way companies conduct their businesses. Virtual enterprise and efficient supply chain management systems will shape the future of these enterprises. Organizations are trying to become agile enterprises with the help of strategic alliances of firms and integration using information technologies. Traditional performance and cost measures are no longer suitable for developing and managing enterprises in the so-called new environment. In order to remain relevant and to add value, cost and performance measures must be designed and systematically evaluated to reduce the often-unnoticed mismatch between strategic goals and operational tactics.

Research limitations/implications - Suggestions are presented for future research directions in managerial accounting areas that would address the requirements of new economy enterprises.

Originality/value - Alerts managerial accounting researchers and practitioners to develop new costing and PMS taking into account the new enterprise environment.

Keywords Accounting, Business environment, Accounting research

Paper type Research paper

1. Introduction

Accounting has become the most intellectually challenging area in the field of management, and the most turbulent one. All these new accounting theories aim at turning the accounting data into information for management decision-making.

Peter Drucker

Accounting has always been used for decision-making, resource allocation, and operational control (Johnson and Kaplan, 1987). From the times of the Egyptian Pharaohs, to the European sea voyages to the East Indies, and the rapid industrialization of the late 19th century, accounting information was the managerial tool of choice for operational control. However, the external financial reporting aspects of accounting information systems became dominant and overshadowed its managerial role in the early 20th century. The accounting profession blossomed in size, scope, and stature along with its role as the state sanctioned sole purveyors of attested (reliable) financial information so necessary for the smooth functioning of our capital markets. However, during the last 20 years, the value and profitability of this attest function declined due to the evolution of alternate sources of relevant information, globalization, technology, and competitive forces (Elliott, 1992). At the same time, driven by the pressing need to provide relevant and timely information for strategic and operational control, there has been a systemic shift and greater emphasis in the role of accounting information as an increasingly important tool for management control (Drucker, 1992; Johnson and Kaplan, 1987).

There is relentless pressure to make accounting information more meaningful for operational decisions and retain its relevance in the present day economy. The current era of intense global competition is compelling all enterprises to aim for a renewed commitment toward excellence and creating value for clients. Increased attention to the business processes, quality of products and services, level of inventories, management of value chain, and improvement of workforce policies, is providing the much-required edge to these enterprises to help them become world-class companies. In advanced manufacturing or service environments, these functions become even more critical and sometimes take a life of their own since it is difficult to directly observe all the value creating activities under one roof or single management control as they are mostly outsourced as well as distributed.

While there are many areas in managerial accounting being redefined due to the paradigm shift in manufacturing and service enterprises, performance measurement and costing require utmost and immediate attention. Accordingly, this paper is focused on these two critical issues in new enterprises. While singular cost-based performance measures are not sufficient to efficiently manage today's complex enterprises operating in even more complex environments, even the current fad to adapt multiple non-financial measures may not be appropriate unless they are aligned with the organization's strategic mission. On the other hand, such "misaligned" performance measures are dysfunctional and cause greater strain on the organization's managerial resources.

One of the critical roles of managerial accounting is to identify and eliminate (or at least try to minimize) non-value adding activities throughout the value-chain. The ultimate goal is to promote value-adding activities. The mismatch between strategies and tactics, largely unintentional, with the overall goals and objectives of the organization trigger most of the non-value adding activities in operations. Non-value adding activities lead to higher production costs, inefficiencies, and hence the loss of profitability. Therefore, to remain relevant and to create value, performance measurement systems (PMS) must attempt to minimize this mismatch. Any misalignment at strategic levels gets amplified into a much larger mismatch of the goals at tactical operational levels. Neely et al. (1995) present a comprehensive literature survey and research agenda for PMS design. Sriram (1995) discusses the accounting information system for flexible manufacturing systems. These reviews provide a strong basis for the change in performance measures and costing system with the objective of meeting the requirements of modern organizations. However, they did not address some of the specifie issues related to costing and performance measures in virtual enterprise, electronic enterprise, and supply chain environments.

Traditional management control systems like budgetary controls, pricing, and make or buy decisions, are embedded in financial accounting and costing. However, purely cost-based operational control measures or other similar measures are no longer relevant, especially in the environment surrounding the enterprises in the new economy, since such measures are reactive and lagging indicators. While the performance measures that are linked to the strategic business process may be more difficult to establish and measure, they are much more relevant. Operational measures and controls that are focused on identifying and solving problems in aligning the tactics with strategy are far more meaningful than the traditional performance measures. However, we are not suggesting that the historical cost-based measures are not needed. We still need these lagging indicators for other reasons. For example, historical cost-based measures may still be needed to validate contracts (debt) and to provide a benchmark for long term as well as cross-sectional comparisons.

Successful enterprises must remain competitive and create value for their stakeholders; otherwise they risk the danger of becoming extinct. The wealth creating and wealth accumulating prescriptions of the industrial era of the last 200 years do not hold good anymore (Elliott, 1986, 1992). Not withstanding the well-deserved natural evaporation of "irrational exuberance" bubble, and the current downturn in the economy, the business model of the 21st century remains to be drastically different from the business model of the past and is still very much valid and viable. For example, we have moved from mass-production of goods and services ("one-size-fits-all") to mass-customization aimed at serving the needs of the smallest niche expeditiously and in a cost-efficient manner. Technology gives us the tools to analyze and deliver client satisfaction at the micro-level in the most cost-effective manner. Technology is both the driver and facilitator of this trend. Despite the dot.com-bust, the technological and global competitive forces are here to stay. In short, there is no looking back or turning back of the clock on the technological frontiers. The pressures of increasingly globalized competition dictate that the individual customer receives the most value-added service in the shortest possible time frame. Doing "more with less" and "24/7" are not mere popular phrases or passing fads, but they are here to stay with us as the business models of 21st century and beyond. The recent economic data on the US economy clearly confirms the secular trend of increasing productivity and the effects of continued pressures to ratchet up the efficiency (US Bureau of Labor Statistics, 2002). In short, the current economic downturn has to do more with the burning up of the overcapacity built during the dot.com rush of 1990s rather than the negation of the underlying technology itself.

Combined pressures of rising competition, globalization, and advances in technology have coalesced together to force the enterprises all over the world to invest in more effective and extensive managerial accounting systems. Successful fusion and management of accounting and information systems is a major challenge for the managers of the 21st century (Drucker, 1992). For example, Lockamy and Smith (2000) propose target costing as a means to management of supply chains.

Managerial accounting, while not formally named as managerial, has always been charged with the responsibility to provide more accurate and relevant cost and other information to the managers for making decisions. Accounting information has been used for making strategic, tactical, and operational decisions in large organizations much before the mandatory financial accounting became synonymous with accounting during the last century (Johnson and Kaplan, 1987). The major drawback of traditional financial accounting-based information has been its rear-view approach to performance measurement.

Therefore, a more proactive approach toward performance measurement is required. It has to be forward looking and guide the internal business processes for achieving the goals of the enterprise. The current approach is passive and reactive which is more concerned with the causes of past performance rather than looking forward to control and guide the internal business processes in the right direction. We envision a proactive management control tool - Measurement Alignment Matrix, for aligning the operations with the goals and objectives by identifying and emphasizing performance measures that bring in line the strategies and tactics with the goals and objectives of the organization. In short, performance measures will add significant value if they are aligned with the strategic, tactical, and operational goals of the enterprise. Value is created when strategy is successfully translated into organization-wide actions that are aligned with the strategy. Effective and value adding PMS become the crucial link between strategy and execution.

In this paper, we discuss the research on performance measures and cost management in organizations in new economy that include virtual enterprise, supply chain management (SCM), and e-commerce environments to successfully compete in a global market. For instance, investing in knowledge capital and information technology plays an important role in developing organizational competitiveness in the 21st century. Therefore, understanding the importance of managing and controlling costs, and performance in new enterprise to compete in the global market has become a primary challenge. This paper sets a new direction for research in cost accounting for providing accurate information to make right decisions in the new enterprise environment of the 21st century.

The organization of the paper is: section 1 introduces the scope for new costing system and performance measures in the 21st century operations environment. section 2 deals with the background for the research. Suggestions for new costing systems and performance measures in virtual and e-commerce environments are discussed in section 3. The challenges for managerial accounting researchers and practitioners are presented in section 4. The conclusions and future research directions are presented in section 5.

2. Background for the research

According to Johnson and Kaplan (1987), and various other researchers, the managerial accounting systems in the nineteenth century were well developed for the needs of the times as early as the 185Os. It is only the excessive focus on (state) mandated financial reporting of the last 70 years that distracted the accountants from channeling their efforts to develop suitable managerial accounting systems for the evolving business models. For example, Fleischman and Tyson (1997), revisit the accounting systems prevailing in the Lowell Textile Mills and the Springfield Armory before the 185Os. Their archival investigation reveals that the operations of these large enterprises "necessitated the use of detailed and comprehensive accounting systems". These management control systems were more than adequate for their times and provided the much needed coordination, control, and "discipline" for large enterprises. The role of accountant and accounting information was pivotal to operational control and decision-making.

However, along with the rise in preeminence of external financial reporting, the managerial role of accounting started to take a backseat. Drickhamer (2002) analyzes a recent KPMG survey of 143 upper executives from industry and government. Most of these, users of the information, report that the current PMS, while still somewhat effective, are not satisfactory. The existing performance measures based on financial, operational, and functional efficiency are inadequate for the new business models. These measures are lagging and reactive and lack predictive value. The study finds that successful measures are balanced and have strong links between strategic and operational measures. Measurement systems fail when they measure what is easy to measure rather than what is relevant, having too many measures, and they are not linked to company goals. Strategic performance indicators must track the marketplace, monitor resource management, and look to the future.

While there were no significant improvements in managerial accounting practice from 1930s to 1980s (Johnson and Kaplan, 1987), the last two decades have seen a renewed interest to push the frontiers of knowledge in this area. "The old accounting system, which tells us the cost of material and labor, is not applicable. Even in manufacturing, perhaps three-fourth of the value added derives from knowledge". The emphasis has been to include non-financial measures in the valuation and performance measurement models and to find control mechanisms for the new economy enterprises and how to make them more responsive to the global and fleeting opportunities. Notable examples of these innovations in this area include, activity-based costing (ABC), activity-based management (ABM), agile manufacturing (AM), balanced score card (BSC), just in time inventory (JIT), SCM, total quality management (TQM), and theory of constraints (TOC).

However, most of these recent managerial accounting practice developments were for the traditional manufacturing organizations and may have to be significantly modified or even replaced with new techniques to take into consideration the realities of business models for new enterprise environments of the 21st century.

A brief review of evolution of performance measures during the last 100 years clearly highlights the move toward a more holistic approach toward performance measurement. Singular financial cost-based performance measures were more than adequate for the needs of the management of pre-industrial and early industrial stable production systems. The evolution of larger and more complex organizations driven by the necessity to take advantage of economies of scale increased the role of management control systems. The control systems of this era, e.g. the DuPont system, were solely based on financial cost and reporting models. The last 25 years have witnessed a crying need for a more holistic approach for performance measurements covering all aspects and functions of the organization. Financial and non-financial performance measures covering different functional areas have been discussed in the literature. However, most of these measures are still grounded in traditional enterprises. Further, it is quite difficult to relate these measures to the business goals and objectives of the enterprise. Most of the field studies report that there is over-measurement with a tendency to measure what can be readily measured rather than what is relevant (Birchfield, 2002). Measurements should be able to influence the business process and add value by relating to the goals of the enterprise.

A summary of the evolution of performance measures over the last 100 years is presented in Table I.

Pre-20th century industrial era performance measures were solely driven by cost as measured by the accounting systems. Historical cost has always been and will always remain an important measurement of enterprise performance. Traditionally, costing has served several useful purposes, as follows:

(1) control of activities, products and services, and the economic units;

(2) financial reporting of assets (inventory) to the outside world;

(3) marketing decisions such as product-mix and pricing;

(4) benchmarking the performance; and

(5) motivation and rewards for the employees and managers.

Fredrick Taylor and his colleagues Frank and Lillian Gilbreath pioneered early 190Os performance measures. They focused on analyzing the core processes and aimed at developing optimal algorithms for activities by using time and motion studies. The French process engineers at the same time evolved the concept of "dashboard" to provide an easy read on the state of affairs of the organization in different functional areas.

Pre-war period of 1930s-1940s witnessed the ideas of W. Edward Deming and Walter Shewhart that focused on operational processes. It was quite a while before Deming's ideas crystallized into TQM and gained acceptance in Japan before United States.

Financial accounting models dominated the post-war period of 1960s. The global competitive forces of 1990s forced companies to look inwards to improve quality and add value to the customer in a short order. Kaplan and Norton championed the BSC approach for performance measurement. The model emphasized the need to balance the financial perspective with the customer, internal business process, and learning and growth issues.

Table I.

Evolution of performance measures

The last decade witnessed a frantic search for valuation models that would include long-term considerations (EVA) as opposed to the short-term (ROI) measures. At the same time, researchers and practitioners have been trying to incorporate the human capital in valuation models.

2.1 Evolution of cost measures

As already discussed in preceding pages, historical cost has always served as a very useful measure of performance, control, and critical managerial decisions viz., make or buy, sales mix, etc. Starting with very simple concept of average cost (total cost/output), various complex cost models have been used. Table II provides a summary of evolution of different cost measures over time.

Table II.

Evolution of cost measures

Costing exercise is an exercise in approximation. It is both a science as well art. While it is fairly easy to isolate, track, and trace "direct costs" it is very difficult to determine the precise amount of "indirect costs" attributable to a cost object (product, service, department, etc.). Therefore, all cost models involve some degree of approximation. Trying to find the "true" and "objective" cost of a particular cost object (product, service, customer, transaction, process, responsibility center, etc.) is the "holy grail" of managerial accounting.

Average cost (Pre-industrial and early period). Total cost divided by the total output. This model was very effective and efficient in determining the cost in single product and stable environments of early and pre-industrial era. For example, (average) cost of transporting one ton of material over one mile. Such measures were also effective for various managerial decisions as well as financial reporting due to the nature of the business - single stable product.

Total manufacturing cost (Until 1940s). Also known as the absorption or full costing approach. The total manufacturing cost is broken down into direct (material and labor) costs and indirect (manufacturing overheads). The model approximates the indirect costs by estimating beforehand and averaging them over single or multiple cost pools. The cost pools could be department based or company wide. The predetermined overhead costs are applied uniformly based on some cost driver (usually direct labor, material, or labor or machine hours). This traditional volume-based approach is quite robust for stable production environments.

This traditional volume-based approach is quite valid for facilities producing products with less diversity and with stable production runs - a model hardly suitable for advanced new economy enterprises. Application of such models leads to serious cost distortions and quite often results in serious dysfunctional or counterproductive behavior within the enterprise.

The absorption (full) cost model is used for reporting the inventory and cost of goods sold in financial statements, prepared under the Generally Accepted Accounting Principles (GAAP).

Direct costing (1940s-1980s). Also known as the variable or marginal costing approach. This approach attempts to isolate only the direct or marginal costs. This model is extremely useful for various "contribution-margin" based managerial decisions with in the organization. This model based on classification of costs as fixed or variable, ties well with the cost volume profit (CVP) analysis for decision-making. However, this approach has severe limitations, especially when applied for long-run decisions.

Opportunity costing (1940s-). It focuses on the often-omitted cost of the second best alternative that must be considered for managerial decisions, especially for transfers within the organization and make or buy decisions. The opportunity cost model helps managers in specifically identifying the cost of missed opportunities. The approach highlights certain behavioral aspects of cost decisions. For example, we tend to ignore the opportunity costs and on the other hand remain fixated on sunk costs, which have no bearing on the future costs or remain constant amongst different alternatives.

Transfer pricing (1940s-). Transfer price models assist in rational allocation of shared costs when goods and services are exchanged between independent segments within a decentralized organization. The approach draws upon the direct cost and opportunity cost models. Transfer pricing mechanism can also be abused by shifting profits in case of organizations operating under differing tax jurisdictions.

Activity-based costing (1980s-). ABC focuses on identifying the cost of major activities and allocating them to the cost object based on their usage of a particular activity. ABC is considered a major innovation in managerial accounting during the last 20 years. Essentially, it attempts to convert most overhead (indirect) costs into direct costs - directly traceable to the cost object. However, the ABC model while a definite improvement over the traditional volume-based approach still retains the approximate and subjective nature of cost measurement. ABC focuses on developing different cost pools for different activities. It attempts to reduce cost measurement distortions caused by the traditional single cost driver volume based approach when costing products/services that use the enterprise resources in differing proportions. The approach tries to reduce the weight of "indirect overheads" that cannot be allocated to smaller sized cost pools. Application of ABC is, however, is not that easy; it requires significant resources of the enterprise, commitment from the top management, and sound judgment by the ABC team. ABM grew out of ABC to guide the strategic management of an enterprise based on the insights achieved during the implementation of ABC. However, over-emphasis of cost aspects of operations can distract the enterprise from its primary goals and objectives and neglect of customer focus Oohnson, 1992).

Market based (Target) costing (1990s-). This approach is a direct reflection of the relentless forces of competition driven by the globalization of capital and economies facilitated by technology. Market economics sets the price and a target for the cost is set beforehand and the engineers and designers strive to fit the product within the target (budgeted) cost.

Product life cycle costing (1990s-). This approach takes into consideration the short product life and fleeting opportunities in the global economy. This approach is in direct contrast with the absorption (full) cost-based standard costs developed for the stable production environments of yester years. The total life cycle costs (relatively high costs in the initial phase) have to be recouped over the short product life.

Throughput (JIT) costing (1990s-). JIT aims to reduce the inventory costs by minimizing the inventory levels. In such an environment, the traditional inventory classifications of raw materials, work-in-process, and finished goods inventories are no longer of much significance. Thus, it would be more efficient to merge some inventory classifications and respective accounts without foregoing the accuracy of the cost models.

These recent developments in the area of cost management (market driven costs, life cycle cost, JIT costs, etc.) have been primarily driven by the global market competition, which tends to dictate the output prices and compels the enterprises to focus on costs and reduce them continuously (Kaizen Costing).

However, all these approaches of cost-based performance measurement do not adequately focus on the value adding aspect of a product or service. Barker (1995), Johnson (1992), and others have highlighted the pitfall of relying too heavily on cost-based financial performance measures and decision-making. Similar modeling for projects and investment appraisal can be very shortsighted.

The traditional cost models have mostly been driven by financial reporting considerations or have been fixated on a specific product or service or function within the organization. This approach is shortsighted and misses the whole point for the existence of an enterprise - to create value for its stakeholders.

The authors of this paper suggest a very different approach for costing and performance measurement that tries to focus on the value being created by the product or the service. We strongly advocate using performance measures that would reduce mismatch of alignment between goals, strategy, and operational tactics. The performance measures should help streamline the tactical and operational implementation of the strategy and not be fixated on financial costs alone. The cost and performance measures in "New Enterprises" have to focus on delivering value rather than merely trying to establish the historical cost. The value chain for such enterprises (procurement to distribution to charge-backs) and may be changing all the time - thus the necessity to take a more holistic approach. In the next section, we examine some distinguishing features of such enterprises and their implications on cost and performance measures.

3. Cost accounting and performance measures in new enterprise

In this section, we discuss the differences between traditional enterprise and virtual enterprise environments of the 21st century. The main objective of this summary comparison is to analyze the evolution of manufacturing or service enterprises over the years and in turn identify the necessary characteristics for new performance and cost measurement systems. Moreover, this short analysis would also assist in identifying the challenges for managerial accounting researchers and practitioners in developing new costing and PMS. We consider that the following changes define the environment for the new enterprises:

(1) distributed operations environment;

(2) global outsourcing;

(3) strategic alliances based on core competencies;

(4) information technology for an integrated SCM;

(5) implications of enterprise resource planning systems on supply chain integration; and

(6) e-commerce and logistics value chain.

3.1 Comparison of charactersitics between traditional and virtual enterprises

Table III compares some of the characteristics of traditional and virtual enterprise environments.

Virtual enterprises seek to harness the opportunities offered by the ever-improving technology, access to certain niches in input-output markets, and their expertise in certain areas. They tend to remain focused on their area of competitive advantage and outsource or distribute the remaining (upstream or downstream) value creating activities required to fulfill the customer needs. A satirical abstract model of a 21st century enterprise envisages only two employees, a person and his/her dog. "The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment (hotler, 2002)". While this is an exaggeration, nonetheless it drives the point home. In such an environment, management of knowledge becomes critical. Accounting and information technologies are at the forefront of this drive for knowledge management.

Table II.

Comparison of characteristics between traditional and virtual enterprises

Virtual enterprises have been at the forefront of some of the following innovations that have evolved in the last 15 years and epitomize the business model for the 21st century. The primary goal of these enterprises is to remain focused on their core competency and to deliver value to the end-users in an expeditiously and efficiently.

(1) Mass customization. It increases the complexity of business processes and in turn the performance measures and metrics.

(2) Integrated supply chain. It focuses on successful partnership development and application of information technology for achieving an integrated value chain.

(3) Outsourcing and lean production. To achieve market advantages by having proximity to markets, supply channels, and resources, and focusing on their individual areas of competitive advantage.

(4) Globalization of input and out markets. Marketing of products and resources requires a framework for expeditious evaluation of global potential opportunities and resources.

(5) IT for knowledge management and value creation. Increasing dependence on; information technologies are an integral part of modern organizations to take advantage of open communication and increased alternatives for resources and markets.

(6) Holistic approach at managing the organization. Since virtual enterprise and SCM rely extensively on managing partners and technologies, a holistic approach is essential to achieve success in these areas.

(7) Emphasis on technology that spans the entire value chain. It suggests a need for justifying and controlling the implementation of ERP for virtual enterprise and supply chain with suitable performance measures and metrics.

(8) Cross-functional approach. These enterprises require a cross-functional approach toward managing the organizations as opposed to a silos approach. It again emphasizes need to revamp the performance and cost measurement systems.

(9) Customer relationship management (CRM). Many companies attempt to create and increase markets for their products by learning form their existing customers. Therefore, a need for monitoring the performance of CRM is essential.

(10) Facilitating B2C, B2B, C2C, C2B, and B2A. These e-commerce systems are essential for achieving lean production with the help of reengineering business process and by eliminating non-value added activities along the supply chain activities. Suitable performance measures and metrics are required for evaluating the effectiveness of these e-commerce environments.

Effective managerial control systems have always been important but they have become even more critical in virtual enterprises due to the nature of their business model that necessitates distributed/outsourced value creating activities and increased dependence on organizations outside their direct control. Coordination and control of the complete value creating process ("value-chain") is the primary managerial challenge in any organization and much more so for the virtual enterprises. Fragmentation of the business processes makes it even more challenging.

In virtual enterprises of 21st century, the costing exercise becomes more of the cost of buying products/services. Information sharing and open communication including mutual trust plays a major role in improving the performance of an enterprise in virtual or e-commerce environment. However, most enterprises still use the same traditional costing and management control systems that were developed decades ago for environments drastically (competition, technology, globalization) different from today. The major reasons for adopting a new cost system are discussed here under:

(1) traditional costing system does not provide adequate value relevant non-financial information;

(2) inaccurate product costing systems;

(3) costing system should encourage improvements; and

(4) overhead cost is predominant.

For example, in virtual enterprises it is important to adopt a costing system based on performance and identifying critical success factors and tracing the measures and metrics to those factors that would ultimately lead to an improved organizational performance and competitiveness and value.

Proactive management of accounting and information systems has been identified as the primary managerial challenge of our times (Drucker, 1992; Johnson and Kaplan, 1987). The role of managerial accounting is to provide timely and value relevant information to the managers for decision-making, both long-term as well short-term. In short, effective managerial accounting system should be able to assist managers in planning, coordination, control, performance measurement, and motivation by providing information that would change the decision on hand and add overall value to the enterprise. A tall order indeed!

Today's enterprises are generally overloaded with numerous measures. These measures get acquired over the life of the enterprise and it is difficult to remove protocols that take a life of their own. Some of these measures loose relevance over time and might even encourage dysfunctional behavior. Along with the efficient and value creating systems (agile/flexible) required by the advanced enterprises, the managerial accounting systems also have to become lean and strategy oriented. Measurement for the sake of measurement is counter-productive by adding noise and friction to the system. We suggest a Measurement Alignment Matrix, a new framework, to assess the efficacy of different measures (current and proposed) to ensure that the performance measurement matrix is fully aligned with the strategy of the enterprise. Just like any living system, the measurement matrix of an enterprise needs to be fine-tuned regularly.

3.2 Costing and performance measures in virtual enterprises

In this section, we discuss the implications of characteristics of a virtual enterprise on the related performance measures and costing (Table IV). Virtual enterprises (the new enterprises) of the 21st century have several defining characteristics. The successful business models for such enterprises come in different flavors. For example, virtual integration of infrastructure and functional areas, domination of indirect costs and capital costs over direct costs and operating costs, knowledge-based operations, informal and flat organizational structure, and flexible management controls. The critical success factors and the related performance and cost measures for these enterprises are listed in the Table III. Needless to say, it is difficult to establish an apnori one to one mapping of the business model for new enterprises to the performance and cost measures. An enterprise may strategically decide to adopt more than one type of models and the related success factors and performance and cost measures will have to be tailor made.

4. Challenges for managerial accounting researchers and practitioners

The accounting professionals in advanced enterprises of 21st century will have to acquire a different kind of mind-set and skills-set than those in the traditional enterprises, unless they want to become redundant (Elliott, 1986). Johnson and Kaplan (1987), while discussing the growing irrelevance of existing measures, wonder why the researchers did not bother to develop new systems and think outside the box. "One might wonder why the university researchers failed to note the growing obsolescence of organizations' management systems and did not play a more active or stimulate role to improve the art of management system design. We believe the academics were led astray by a simplified model of firm behavior". Neely et al. (2000) describes the development and testing of a structured methodology for the design of PMS using balanced scorecard approach and process-based method. The fundamental paradigm shifts in the value creation process necessitate appropriate changes in the management control systems. The performance measures and the conceptual framework to implement them have to change. The managerial accounting discipline and its practices must evolve, if it wants to retain its relevance in the changed world. It has to become more proactive in responding to the rapidly changing market and business environment.

During the last 20 years, the role of accounting function has changed significantly to align itself with the new business models. Essentially, it requires a different mindset. This is even truer of virtual enterprises where speed, agility, and alacrity are of essence.

(1) Staff to line. The accounting has moved from a being a mere support function for managerial decision-making to being an active partner in the decision-making process. Accounting professionals find themselves as active members of project teams. The role expands even further in virtual enterprises where functional boundaries are disappearing fast.

Table IV.

Costing and performance measures in virtual enterprises

(2) Improved communication skills. Since the information has to be put to use immediately and keeps changing constantly the accounting professionals have to do a better job of communicating their findings. They have to be able to communicate directly and clearly with other managers within the enterprise who may not have the same level of sophistication in understanding the technicalities.

(3) Willingness to benchmark. In order to retain their competitive edge the enterprises have to continuously improve themselves through benchmarking within and outside the enterprise. The accounting professionals within such an enterprise also have to be willing to learn and improve continuously.

(4) Data to knowledge. The technology has mechanized and routinized mundane and mechanical tasks like bookkeeping and record keeping. The accounting professional of a 21st century virtual enterprise will have to have the ability to convert data into relevant information and knowledge that will contribute value.

(5) Reactive to proactive. Being grounded in historical data, accounting information tends to be mostly reactive and lagging indicator. This is not enough for virtual enterprises. The accounting professional will have to make a conscious effort to go beyond the lagging mindset to a leading and proactive mindset.

(6) Total performance management (TPM). Performance management is the responsibility of everyone in an organization and not just confined to accounting department. It is a new workplace culture that requires all people in the organization are accountable for their performance either individually or collectively. An interdisciplinary team consists of people from different functional areas should be formed for managing the performance at various levels of an organization

Following are some of the challenging tasks for managerial accounting researchers and professionals:

* Develop a value-based costing system by identifying the critical areas of an organization that would influence the overall outcome of the business

* Develop performance measures and metrics to evaluate the alignment between strategies at different levels such as strategic, tactical, and operational.

* Measurements for evaluating the return on knowledge capital (Roslender and Fincham, 2001).

* Evaluating the risks involved by not making right decisions at strategic, tactical, and operational levels.

* How to measure information system productivity (strategic impact and operational benefits)?

* How to apply the concept of international transfer pricing for making decisions regarding the cost of products obtained from suppliers?

* Application of financial and non-financial performance measures and tangibles and intangibles in virtual enterprise and SCM.

* How to optimize the knowledge required in new enterprise environment?

* Develop new costing framework for measuring various costs for product-mix decisions and pricing decisions

* Measurement of performance e-logistics.

5. Summary and conclusions

In this paper, an attempt has been made to study the evolution of manufacturing enterprises together with performance and cost measures. Also, this study aims to identify the challenges before the practitioners and researchers in managerial accounting in terms of developing new cost and PMS taking into account the virtual enterprise and supply-chain environments. The real challenge is to recognize the need for new cost and PMS in new economy. Change the mindset and approach of practitioners in such a way that would make them more proactive and participant in the decision-making process rather than just a data recorder and provider. Moreover, measurement of alignment between different levels of strategies is important to eliminate any errors at the higher-level decisions and hence supports a proactive management approach for improving organizational productivity. Since most of the activities are under the control of partners, an international transfer pricing can be used for estimating the cost of products traded through global outsourcing.

The knowledge productivity plays a major role in influencing the productivity of virtual enterprise and supply chain. This requires measuring the knowledge capital productivity and their implications on the overall performance of an organization. In e-commerce and virtual environments, logistics effectiveness contributes to the timely delivery of products to customers and markets; this area needs a set of new performance measures and metrics for measuring the productivity of logistics value chain. The main objective of this paper is to alert the managerial accounting researchers and practitioners for developing new costing and PMS taking into account the new enterprise environment. We have provided some directions and suggestions on the type of accounting systems required for managing the resources judiciously for producing high quality products and services in new economy.

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Revised April 2004