Ramji Balakrishnan

The Predictive Ability Of Geographic Segment Disclosures

This research is aimed at evaluating whether geographically segmented (GEOG) data provide incremental information about the earnings process. Previous research on segment data has focused on the relevance of line-of-business (LOB) segment reports.1 But, to our knowledge, no similar research has been done on the GEOG disclosures which have been required since the introduction of Statement of Financial Accounting Standard (SFAS) No. 14. The issue of providing segment disclosures has renewed significance because the SEC has been considering the extension of segment disclosures (both LOB and GEOG) to all interim financial statements (Ernst and Whinney [1985] and Craven and Feller [1984]).2 In addition, segment

Does Capacity Utilization Affect the “Stickiness” of Cost?

Traditional cost models are constructed using the assumption (Noreen [ 19911) that costs change proportionately with activity levels. The implicit assumption is that the proportionality of the change in cost is independent of the magnitude and direction of change in activity levels. Considerable attention has been devoted to examining the explicit proportionality assumption (e.g., Noreen and Soderstrom [ 1994, 19971; Balakrishnan and Soderstrom [2000]). Recent research (Anderson, Banker, and Janakiraman [2003]) has begun to examine the implicit assumption of whether the direction of change in activity moderates the cost response. A differential response is expected because, as Cooper and Kaplan (1998) observe, managers seem more inclined to increase costs when activity levels increase than they are to decrease costs when activity levels decrease. Anderson et al. (2003) coin the term “sticky” cost to capture this asymmetric cost response. Their analysis of selling, general and administrative costs provides broad support for the conjectured behavior.’ This paper extends the analysis in Anderson et al. (2003) to capture the effect of two factors that may also moderate the manager’s response to changing activity levels. First, the magnitude of the change may influence the proportionality of response. Significant transactions costs associated with changing cost levels may rationally lead to the response to a “large” change in activity being proportionately larger than the response to a “small” change in activity.’ The response to small

Sequential Solutions to Capacity-Planning and Pricing Decisions*

Ideally, firms should jointly solve capacity-planning and product-pricing problems. In practice, informational limitations and cognitive bounds may force firms to sequentially solve the two problems. For example, a firm may plan capacity using limited demand information, and update prices subsequently once additional demand information becomes available. In a simple setting, we characterize the economic loss due to such sequential planning. We use simulation experiments to assess the extent of this loss in more complex settings. We find a relatively low loss if the firm plans for capacity using limited demand information and subsequently adjusts product prices to reflect realized market conditions. However, even “reasonable” restrictions on the subsequent price adjustment (e.g., constraining adjusted prices to always exceed full cost) lead to significant economic loss.

CAPACITY PLANNING WITH DEMAND UNCERTAINTY

ABSTRACT We examine how the ability to augment capacity on an as-needed basis affects capacity planning. If it is feasible and desirable to augment all resources on an as-needed basis, optimal capacity planning can be done separately for each resource. Optimality of this simple rule is lost if even one capacity resource imposes “hard” constraints. Simulations indicate that simplifying capacity planning to focus on an expected bottleneck resource dominates product- or resource-level capacity planning, when all resources impose hard constraints and the firms product mix problem is significant.

Short-Term Contracts, Long-Term Actions, and Information System Design

We examine how “long-term actions” (current period actions that bear fruit in the future) can be motivated when short-term contracts are employed, and derive implications for the design of performance measurement systems. In our two-period model with unknown agent type and moral hazard, the principal chooses between a fine and a coarse performance measurement system. These two systems differ in the information they convey about the agents unknown type and therefore lead to different retention/firing policies. The principals retention policy in turn influences the agents incentives to undertake long-term actions, especially if the agent has advance information about what the performance is likely to be; an employee expecting to get fired is less likely to take actions that will bear fruit only after his departure from the firm. We show that the principal may prefer a coarser performance measurement system because it can substitute for her ability to commit to retention decisions. We also show that the finer the agents private information is, the greater the benefit for the principal from coarsening the performance measurement system for contracting purposes. We discuss some practical implications of our analysis.

On the Value of Public Predecision Information in Principal-Agent Models

We examine the principals preference for a public predecision information system that produces a signal about a parameter of the firms production function. We show that the discreteness of action space plays a crucial role in establishing the principals preference for suppressing the release of public information. Without this discreteness, the principal strictly prefers to install the information system provided that the second best action policy is always interior. We use a numerical example to demonstrate that the negative result can obtain even with continuous action choice so long as the action choice is not interior for at least one of the information signals.

Endoscopic Versus Open Carpal Tunnel Release: A Detailed Analysis Using Time-Driven Activity-Based Costing at an Academic Medical Center

PURPOSE In order to effectively improve value in health care delivery, providers must thoroughly understand cost drivers. Time-driven activity-based costing (TDABC) is a novel accounting technique that may allow for precise characterization of procedural costs. The purpose of the present study was to use TDABC to characterize costs in a high-volume, low-complexity ambulatory procedure (endoscopic vs open carpal tunnel release [CTR]), identify cost drivers, and inform opportunities for clinical improvement. METHODS The costs of endoscopic and open CTR were calculated in a matched cohort investigation using TDABC. Detailed process maps including time stamps were created accounting for all clinical and administrative activities for both the endoscopic and the open treatment pathways on the day of ambulatory surgery. Personnel cost rates were calculated accounting for capacity, salary, and fringe benefits. Costs for direct consumable supplies were based on purchase price. Total costs were calculated by aggregating individual resource utilization and time data and were compared between the 2 surgical techniques. RESULTS Total procedural cost for the endoscopic CTR was 43.9% greater than the open technique (

Obtaining Informationally Consistent Decisions When Computing Costs with Limited Information

2,759.70 vs

New Directions in Management Accounting Research

1,918.06). This cost difference was primarily driven by the disposable endoscopic blade assembly (

A Critical Overview of the Use of Full‐Cost Data for Planning and Pricing

217), direct operating room costs related to procedural duration (44.8 vs 40.5 minutes), and physician labor. CONCLUSIONS Endoscopic CTR is 44% more expensive than open CTR compared with a TDABC methodology at an academic medical center employing resident trainees. Granular cost data may be particularly valuable when comparing these 2 procedures, given the clinical equipoise of the surgical techniques. The identification of specific cost drivers with TDABC allows for targeted interventions to optimize value delivery. TYPE OF STUDY/LEVEL OF EVIDENCE Economic Analysis II.