David E. Stout

Regression Analysis: Instructional Resource for Cost/Managerial Accounting

Abstract This paper describes a classroom-tested instructional resource, grounded in principles of active learning and a constructivism, that embraces two primary objectives: ‘demystify’ for accounting students technical material from statistics regarding ordinary least-squares (OLS) regression analysis – material that students may find obscure or overly abstract – and increase student knowledge regarding the use of Excel for cost-estimation purposes. The resource consists of a set of seven student-related files – PowerPoint slides, Word documents, and Excel files – divided into two major parts: four files that deal with simple (i.e., one-variable) linear regression and three files related to the incremental unit-time learning-curve model. A separate Word file, meant for instructors, provides detailed guidance regarding the use of the student-based files. The resource is flexible in that it can be used at both graduate and undergraduate courses in cost/management accounting; customized to meet the needs of individual instructors (coverage of the entire resource requires approximately seven hours of in-class time) and used in conjunction with any cost/management accounting textbook. Throughout the resource many references to related online supplemental materials are provided, including links to relevant online video clips.

The Smith Company: a case on capital budgeting and real options

Purpose - This paper aims to provide upper-level accounting and/or finance students with a review of the intricacies of option pricing, discounted cash flow (DCF) capital budgeting decision models, various types of real options, how risk analysis of long-term capital investments can be facilitated by explicit consideration of real options, and the role of sensitivity analysis in the analysis of capital investment projects with real options. Design/methodology/approach - The paper describes a fictional company facing a risky capital investment proposal. Students evaluate the investment proposal using traditional DCF analysis (i.e. the net present value method), and then re-run the analysis by incorporating the existence of real options into the analysis of the proposed investment. Finally, students see the value of using Crystal Ball software for conducting sensitivity analysis as part of the decision-making process. Findings - There are two primary conceptual lessons that students realize by completing this educational case: real-options analysis is a conceptually correct and robust way to explicitly deal with project uncertainty, and failure to explicitly consider real options in the analysis of capital investment projects may result in suboptimal decision making. Originality/value - This case covers all major real-option topics required for the certified management accountant exam. Further, the case fills a void in the literature of accounting education as this literature pertains to the availability of case material regarding the use of real options as an extension to conventional capital budgeting techniques.